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Services and Service Management

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Service Science Research,
Strategy and Innovation:
Dynamic Knowledge
Management Methods
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 1

Chapter 1
Services and Service
Management
Balázs Heidrich
Budapest Business School, Hungary

Gábor Réthi
University of Miskolc, Hungary

ABSTRACT
This chapter provides an introduction to Service Management. First of all, the authors provide an over-
view of the special characteristics of services compared to the traditional goods-focused approach. They
then examine the different approaches concerning services and a wide range of definitions of services.
It is essential to understand the special attributes of services, because a different approach and lead-
ership style is needed when compared to a production company. The service providers have to face a
more heterogeneous environment, and with the advent of the internet, they have to compete with other
companies across borders. With a better understanding of the concept of services, the authors examine
service management as a means of discovering the most efficient way to manage services. Finally, they
consider the special traits and attributes of the service market and the indication of a need for a new
management concept. The authors introduce the popular and well-known service management approaches
and a new approach: the Culture-Based Leadership Model of Services.

INTRODUCTION service creates a competitive advantage for the

All over the world services have become a critical
factor in achieving competitive advantage, regard-
less of the sector of the economy in which they
operate. For companies like IBM or GE, services
mean the primary source of growth and profit
potential in the 21st century. The high quality of
DOI: 10.4018/978-1-4666-0077-5.ch001
traditional service companies, such as Charles
Schwab, Marriott Hotel, FedEx or Starbucks. The
companies compete not only on the basis of their
products, but also with the services they provide.
Service management is concerned with
customer-oriented, value-enhancing operations
and affects not only what is traditionally known
as service organizations, but also constitutes a
future paradigm for organizations in general.

Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

The separation between products and services
in its traditional sense is outdated and represents
a myopic production view. Although service
management has taken a giant step since the late
1970s, we are only now beginning to see a new
era of management that will fight in the battle for
economic survival. Many product manufacturers
recognized their inability to develop truly pro-
prietary products in the turbulent global market.
Therefore, they are attempting to migrate towards
the supply of services as a means of generating
growth. Services are knowledge intensive (people
and labor) and typically local (on-site systems
design, integration and startup). Product manu-
facturers usually face intense local competition
and struggle to sustain consistent revenue growth
and sufficient profit margins.
Service processes require the participation of
the customer: Without the customer, service pro-
cesses cannot take place. The fact that the service
provider is dependent on customer participation
causes difficulties in managing service processes
efficiently and effectively because a customer’s
input can only be influenced by the provider to
a certain extent.
When considering the transition from a prod-
uct-based economy to a services-based economy,
there are several reasons for the growth in ser-
vices management. First, in a hypercompetitive
economy, where globalization, rapid new product
development and services innovation, opera-
tional excellence, and customer relationships are
significant drivers of competitive performance,
firms are discovering that they have significant
structural barriers to flexibility and competitive
performance. They need to establish capabilities to
manage their portfolio of resources as services for
business processes, such as IT. Service companies
like McDonalds have prospered in the past with
a business model that was designed according
to the principles of traditional mass-production
manufacturing. Nowadays that model is obsolete.
It inevitably degrades the quality of service a
company can provide by setting in motion a cycle
2
Services and Service Management
of failure that produces dissatisfied customers,
unhappy employees, resulting in a high turnover
of both customers and employees – and so lower
profits and lower productivity overall (Schlesinger
& Heskett, 1991).
As we see this kind of shift in emphasis from
the production company to the service company, a
new kind of approach is needed for the company’s
leadership as well. Therefore, in this chapter,
we will examine: the differences between goods
and services, definitions of services, the service
concept, McDonaldization & Disneyization, the
cycle of failure and cycle of mediocrity, the hu-
man factor of services, internal marketing and
the Culture-Based Leadership Model of Services.
THE FEATURES OF SERVICES
Finding a suitable definition and specification of
what constitutes a service is not straightforward.
Schmenner (1995) argues that it is easier to define
what is not a service, rather than what is. We con-
sider the likes of hotels, restaurants, repair shops,
entertainment outlets (like amusement parks or
cinemas), as well as health centers (like hospitals
and private surgeries) as traditional service pro-
viders. A second category is ‘mindware’ services,
like technical and legal services, tax consultancies,
insurance, real estate agencies, and educational
institutions. A third category is concerned with
distribution and includes wholesalers, retailers,
and people working in all forms of logistics as
service providers. However, there are some service
providers that do not fit into these three categories:
• Public utility providers are service provid-
ers; an electricity retailer actually gener-
ates the electric current and distributes it
via its network, which is significantly more
capital-intensive than many production
companies.
• Another example is IBM that redefined its
activity after experiencing difficulties in
Services and Service Management
the Eighties and “….from a desperate pro-
duction company it transformed itself into
a leading service provider” (Hamel, 2000).
If they had not done this, they might not be
on the market at present.
• Another interesting example is GE as an
industrial conglomerate, which acquired
over 50% of its revenues from financial
services.
Grönroos (1990) highlights this aspect of du-
ality seen in the example of GE saying that most
manufacturing companies need to incorporate
some form of services into their offerings. To put
it simply: everybody can produce a good, but that
does not guarantee competitive advantage. What
creates a competitive advantage is when product
tracking, maintenance, customer-care, advisory
services, delivery, etc. are offered in addition to
the product itself.
Therefore, we consider the concept of a “hid-
den service sector,” which means there are a lot
more services than registered and that manufac-
turers provide a considerable amount of services
themselves (Evans & Berman, 1987).
The Specific Features of Services
Within the context of these different service pro-
viders, the specific features of the services can be
defined as follows:
• Intangibility: These services cannot be
touched or felt. Although a service is
normally attached to something tangible
like an aircraft itself, a table and chair, an
ATM, a hospital bed, etc., it also pertains to
something that is not tangible. What peo-
ple pay for is not the aircraft but the cost
of travel. It is not the table and chair that is
important, but the experience of the meal.
In the hospital, what we want is not the
hospital bed itself, but to regain our health.
The Unique Selling Proposition (USP) of
the service is its intangible content, rather
than the associated physical items, which
is why in such cases they are called ‘sup-
porting products.’ As most services are in-
tangible, it is difficult to measure both their
quantity and their quality (Seitz, 2000).
• Perishability (Inability to inventory):
Services cannot be stored, so it is very im-
portant to make plans concerning capac-
ity. In cases of production the cost element
is considerable; the lack of revenues may
come from the lack of strategic planning
of capacity. This is the reason why it is so
important to identify the customers’ needs,
and manage capacity so that the demand is
redirected in ‘peak periods’ to less busy pe-
riods (e.g. telecommunication, electricity,
restaurants, etc.) (Schmenner, 1995).
• Inseparability: In most cases and in most
circumstances the usage of the service hap-
pens simultaneously with its production,
such as in the case of education! Thus,
the production of the service happens in
front of the customer. During this process
one can notice a series of interactions be-
tween the supplier and the customer. This
process is more visible than in the case of
‘production’ and so quality is a key issue:
if there is a mistake, it cannot be fixed at
the end of a quality assurance process, like
in production.
• Heterogenity (Variability): The intan-
gible nature of services leads to the ever
challenging problem of standardization
and quality control of services. Since in
the case of most services the human factor
is involved, it is difficult to measure and
control quality. No services are identical,
from one service provider to another or
from one moment to the next, even with-
in the same company. Well-established
product quality methods and measure-
ments fail to capture the perceived qual-
ity of services. Variability is also the root
3

of service leadership and human resource
management problems.
• Easy entry to the market: Some services,
although not all of them, need some invest-
ment. The entry into the market is not nec-
essarily difficult. Consequently, because of
the fierce competition, it is vital to respond
to the real and potential threats.
• External influences: Services are greatly
influenced by external factors, like tech-
nological advancement, government regu-
lations, and the increase of energy prices.
They may change the way the service is
rendered, as well as the basic structure of
the company. For example, deregulation
altered such service areas as air traffic and
logistics (Schmenner, 1995).
When considering these special features of the
services sector, it is also worth considering the
associated deficiencies. Seitz (2000) lists factors
such as the lack of possibility of measurement,
being located in one specific place, and the lack
of standardization.
The Definition of Service
Service is a complex concept. Its meaning ranges
from ‘personal service’ to ‘service as a product.’
A machine by itself is an object, but it becomes a
service when the customer is given a customized
design or offered a customized solution to meet
his or her needs.
Here are a few definitions of services in their
narrowest meaning:
• “Service—Activities, benefits, or satisfac-
tions which are offered for sale, or provid-
ed in connection with the sale of goods”
(American Marketing Association, 1960).
• “For the customer, services are any ac-
tivities offered for sale that provide valu-
able benefits or satisfaction; activities
that he cannot perform for himself or that
4
Services and Service Management
he chooses not to perform for himself”
(Bessom, 1973).
• “A service is an activity offered for sale
which yields benefits and satisfactions
without leading to a physical change in the
form of a good” (Blois, 1974).
• “A service is an activity or a series of ac-
tivities which take place in interactions
with a contact person or a physical ma-
chine and which provides customer satis-
faction” (Lehtinen 1983).
• “A service is any intangible benefit, which
is paid for directly or indirectly, and which
often includes a larger or smaller physi-
cal or technical component” (Andresen,
1983, p. 6).
• “A service is any activity or benefit that
one party can offer to another that is essen-
tially intangible and does not result in the
ownership of anything. Its production may
or may not be tied to a physical product”
(Kotler & Bloom, 1984; Kotler, 1988).
• “A service is something which can be
bought and sold but which you cannot drop
on your foot” (Gummesson, 1987; refer-
ring to an unidentified source).
All the above definitions have their pros and
cons and, in one way or another, they have their
limitations. The last ironic definition highlights
the difficulty of defining services:
“A service is an activity or series of activities
of more or less intangible nature that normally,
but not necessarily, take place in interactions
between the customer and service employees and/
or physical resources or goods and/or systems of
the service provider, which are provided as solu-
tions to customer problems.” (Grönroos, 1990)
Löwendahl (1997) argues that services are
so varied, that it is very difficult to find one
definition for them. He says that even the most
straightforward terms like: intangible, prompt,
Services and Service Management
collaboration and perishability, are dubious. On
the one hand, restaurant bookings, air travel, hotel
accommodations are all transient and perishable.
On the other hand, engineers’ designs in the form
of drawings and calculations are tangible, stor-
able and reusable. An auditor needs continuous
cooperation between the auditor’s office and the
accountancy office of the customer. In contrast,
a patient cannot collaborate with their surgeon
after the operation is under way.
A practical definition can be given with an
emphasis on the creation of value:
“A service is an act or performance offered by
one party to another. Although the process may
be tied to a physical product, the performance is
essentially intangible and does not normally result
in ownership of any of the factors of production.
Services are economic activities that create value
and provide benefits for customers at specific times
and places, as a result of bringing about a desired
change in – or on behalf of – the recipient of the
service.” (Lovelock & Wright, 2001)
This concept of adding value is further accen-
tuated by Haksever, Render, Russell, & Murdick
(2000) who mention:
“There are, however, other organizations that
facilitate the production and distribution of goods,
and organizations that add value to our personal
lives through a variety of intangibles they provide.
Outputs of this latter group are called services.”
The Types of Services
The Operational Function of Services
The operational function goes through all of the
company, even if it only represents a separate
area or an embedded unit in a division of an
organizational chart. The operational function
is often organized around two task groups: line
management and facilitating (support) functions.
Line management refers to those managers who
directly take part in the service provision. They
are the ones who are in close connection with
the operation and monitor the staff in their work.
In the service sector the role of line manag-
ers is rather extensive and they often supervise
the taking of orders too. The facilitating services
are those that take place behind the scenes, like
information technology, financial, accounting or
personnel services, or new service developments.
Classification of Service Sectors
The most popular typology was provided by
Schmenner (1986), who grouped the services ac-
cording to the type of service process. He called it
the service process matrix. The two dimensions of
the matrix are (1) how work-intensive the process
is (i.e. whether the devices or the human factor
is dominant in the service provision) and (2) the
extent of customization of the service and the level
of interaction between supplier and customer. The
four typologies are as follows:
• Service Factory: In some service process-
es labor-intensity is low, so it is the devices
and equipment that constitute the majority
of the costs. In these cases customization
and interaction is low too. These are called
service factories. In these cases industrial
standardization is typical, and the special
needs of customers are neglected. This cat-
egory would include logistics companies,
hotels and fast food restaurants.
• Service Shop: In contrast to the service
factories, in a service shop the function of
interaction between service provider and
customer is more significant. It is impor-
tant to adapt to the customer needs, so the
cost-effective standardized methods are
less favored. Good examples are automo-
bile repair shops and hospitals.
5

Table 1. Matrix of service process (Schmenner, 1995)
Extent of Interaction and Customization
low
Service Factory
▪ Airlines
low ▪ Logistics
▪ Hotels
Extent of labor ▪ Tourist resorts
intensity Mass service
▪ Retail trade
High ▪ Wholesale
▪ Schools
▪ Retail units of commercial banks
• Mass Service: Mass service processes are
labor-intensive, but here customization and
interaction are low. The service is usually
standardized with a low level of interaction
between service provider and customers.
Wholesale and retail trade, commercial
and banking services, as well as education
fall into this category. Here the quality of
the relationship as well as the relationship
itself has to be stressed too.
• Professional Service: In the case of pro-
fessional services both labor-intensity,
and customization have an important role.
Examples are doctors, lawyers, architects,
business consultancy, and training. These
services provide solutions to different in-
dividual and complex problems; therefore
it is necessary for the customers to actively
cooperate with the service providers. The
customer has an important effect on the
costs and the quality of the service. That is
why these kinds of services are called ‘mu-
tual services’ (Veres, 1998) (see Table 1).
CONCEPTS OF SERVICES
The most famous service concept is “The Moment
of Truth,” which is attributed to Jan Carlzon and
the company, SAS Group. As the CEO of SAS
6
Services and Service Management
high
Service Shop
▪ Hospitals
▪ Car maintenance
▪ Repair shops
Professional services
▪ Doctors
▪ Lawyers
▪ Accountants
▪ Architects
Group, Jan Carlzon (1987) published his book
about the establishment of the company under
the same title. However, the name actually comes
from Richard Normann, who first used the term
in 1978 in a publication in Swedish1, and in some
of his later writings as well.
The term comes from the fact that in most
services there is a kind of social communication,
which directly happens between the service pro-
vider and the customer. In that precise moment
of communication the parties are on their own,
like the bull and the torero in a bullfight. In this
moment the company does not count, it does not
have an effect on the interaction (Figure 1). Before
and after the interaction it does, of course, have
an effect because the employee’s motivation,
qualification, his or her skill of handling a conflict,
and a lot of other human features will influence
the ”Moment of Truth.” A large service company
goes through thousands of moments of truth a
day. This very feature of service provision affects
all the other aspects of the planning, structuring
and rendering of the services. (Normann, 1993)
Before we consider the offering and how the
whole package should be put together, we need
to consider the issues below:
• Relationing: There are a lot of debates
about whether the manufacturing industry
or the service industry is more labor-inten-
sive. Normann (1993) states that this ques-
Services and Service Management
Figure 1. The moment of truth
tion is not so crucial; there are services,
which need more capital, technology and
equipment than production companies.
However, at service companies the per-
sonal connection is far more vital. It is true
even if, as a result of the technical develop-
ment, it does not necessarily mean a physi-
cal, personal meeting. It is also true that on
an aircraft or in a restaurant, although we
do not see them, we are aware that the pilot
and the chef respectively are present. So,
the intensity of personal contact is indepen-
dent of how device- and/or labor-intensive
the service is. Its quality is given by its per-
sonal touch. It is also relevant in massively
standardized services like McDonald’s.
When we buy a car we never think about
whether the mechanic was smiling, or how
he was dressed. In a fast food restaurant,
though, we notice these things when we
are being served. (Especially when we
are satisfied.)
• Broadening: As long as services are rather
personal, it is difficult to limit the service
to content alone. Therefore the banks and
insurance companies become more and
more versatile financial service provid-
ers. The same applies to car salespersons
who deal with sales, finance, maintenance,
and all administrative aspects of the sales
of vehicles. Thus, we speak about a whole
range or structure of services rather than
just the service itself. This is what we buy
when we contact the service provider. This
extension is the result of the importance of
customer care. This trend apparently puts
a large burden on the service providers,
who need to possess all the personnel and
intellectual resources that the augmented
service demands and may also result in
cooperation among service providers and
a number of associations.) All this be-
longs to the field of strategic planning and
management.
• Bundling: A considerable part of the ser-
vice sector is regulated (banks, insurance
companies, telecommunication, media,
air traffic, road transport, health care, ed-
ucation, etc.). This regulation is good for
those parties who are already on the mar-
ket. They tend to standardize and bundle
together their service offers, but they are
unwilling to ‘un-bundle’ them according
to the wishes of the customers (e.g. cable
television providers).
Service providers want the customer to buy
a whole package (or nothing). In this respect
some of the elements dominate in price, some of
them are free. In such cases the former elements
finance the latter. Because of the regulations and
other market forces, the need for unbundling is
increasing; the package needs to be separated and
rebundled in a more marketable fashion. In the
most optimal case the rebundled service is much
7

more based on the real market demands than the
original package. (Normann, 1993)
Developing a Service Package
Grönroos (1990) considered the following steps
important for service organizations in developing
a service package:
1. Forming the service concept
2. Planning the basic package
3. Designing the augmented service offering
Additional factors that could be added to the
above list are the planning of the image and the
communication, both of which are significant
issues in developing a package.
The Service Concept
We have already dealt with the problem of iden-
tifying services. Experts also come across the
same problem when they try to outline and present
the service package provided by their company.
Often the most straightforward solution is to put
together a complete overall view relating to a
product; enlisting the interfaces and outputs for
the customer in the process. One can consider a
service as a product only from the point of view
of the customer. (Grönroos, 1990)
For services, there is a backward aspect to
planning (i.e. we have to know what are the
things that need doing to make the whole process
flow smoothly). This is how we get to the idea of
service concept. Berry (1983) and Lewitt (1983)
formulated it in this way: One has to incorporate
extras into the services, by which one can ‘aug-
ment’ the services. Both writers agree that these
extras may help the service provider in gaining a
competitive advantage.
8
Services and Service Management
Service Offering
A service offering is divided into two categories;
a main or ‘core’ service and extra or ‘peripheral’
services. The latter is sometimes also called supple-
mentary services. For example, in the case of a
hotel the accommodation is the core service; all
the rest such as the reception, restaurant, sauna,
laundry, fitness gym, etc. are supplementary or
peripheral services.
One can certainly state that the separation
between these two categories is not straightfor-
ward, especially when there is little difference in
the core services of the competitors. In this case
customers will make their decision on the basis
of the supplementary services. The two categories
are not always distinct as the quality standards are
specified according to the customers’ expectations.
For example, in a McDonalds nobody expects
silver cutlery; but on the basis of our expectations
we can rate their service outstanding. Within this
context, it is a big mistake to stress the cliché that
the ‘customer is always right’ because customers
sometimes behave in an irrational way, and their
expectations are not specified at all. Sometimes
they do not know what they want, or what would
suit them best. Therefore the service providers
should think twice before they incorporate ex-
pensive supplementary elements or higher quality
elements into their offerings: it is impossible to
withdraw them later (Normann, 1993).
The service offerings may consist of the fol-
lowing elements (Sasser, Olsen, & Wyckff, 1978):
1. Facilitating goods (tangible products, like
meals at the restaurants, hardware used for
an information technology service)
2. Explicit intangibles or physical benefits
3. Implicit intangibles or psychological benefits
When considering, for example, the service
package of a foreign language course taken abroad,
the first category concerns the accommodation,
rooms, supplementary technical devices, and
Services and Service Management
transport facilities. The second category includes
the increased knowledge of the language, while the
third may pertain to the opportunity for socializing,
and the experience of staying abroad. In the case
of children studying a course abroad an implicit
intangible benefit for parents may be the ‘useful’
way of getting rid of the children for a while.
A service package can be identified on the basis
of functions and problems that it entails. One func-
tion can be that it requires extra human resources
or capacity, when necessary. Such functions that
are not core are referred to as facilitating services
and are often outsourced to other providers, so that
the service provider can concentrate on their core
service(s). Examples of these are: cleaning; IT;
consultancy; auditing; and advertising.
The Factors of Service Packages
Specialized Capacity to
Deliver Services
Service companies compete not only with their
competitors, but their customers too. A restau-
rant competes with housewives and company
canteens, while an advisory office competes with
the customer’s own experts and managers, who
may think that they could provide the service
themselves. Therefore the service providers need
to have expert knowledge in that specific area, and
be capable of providing the service for the client
at an acceptable price.
Linkages and Social Relationships
Service organizations have to liaise with their cli-
ents in a novel way. This may happen by forming
new relationships or placing the old ones in a new
context. Banks, insurance companies, and trans-
port companies work together in this configura-
tion. For example, a school or a kindergarten links
families as a type of ‘contact broker’ encouraging
networking in the role as an intermediary.
Transfer of Know-How
The basis of a number of service organizations
rests not only on the knowledge and know-how
of their staff being greater than that of their cus-
tomer. It may also come from the economies of
scale. There is a constant dilemma about whether
to render a service or share the know-how. It is
a problem for banks, for example, in deciding
whether to offer training to companies about
how to invest for themselves, or go on with their
investment advisory service.
Management and Organization
as a Service Product
It is an interesting trend that many service orga-
nizations sell management systems rather than
services. As with the previous point, the dilemma
is the same: whether a company should offer con-
sultancy and training services or compete for a part
of the management’s function to be outsourced
to them. It can be seen as a sign of the increasing
prestige of management activities. Although or-
ganization and management may not necessarily
be an explicit part of the service package, it does
happen informally (Normann, 1993).
Augmented Service Offerings
Although service processes greatly depend on the
situation, from a management point of view there
are three aspects worth considering (Grönroos,
1990) (see Figure 2):
• The accessibility of the service
• Interaction with the service organization
• Customer participation
The accessibility of the service depends on,
among others:
• The number and qualification of staff
9

Figure 2. Augmented service offering
• Opening hours, schedule, and time allo-
cated to different tasks
• Location of various offices, repair shops,
service units
• Exterior and interior layout of offices,
workshops, service outlets
• Tools, equipment, documents, forms
• The number and knowledge of customers
who are simultaneously involved in the
service process
Interaction with the service organization
depends on:
• Communication between staff and custom-
ers, which mainly depends on the behavior
of the staff (i.e. what to say and how they
say it; what to do and how to do it).
10
Services and Service Management
• Interaction with different devices and tech-
nical resources of the company (e.g. slot
machines, documents, waiting rooms, and
all machines with which the customer has
to deal in the course of the service).
• Interaction with procedures and systems,
like queuing, billing, shipping, delivery
systems, as well as maintenance, repair,
time-setting and dealing with complaints.
• Interaction with other customers, which is
inevitable during the process.
Customer Participation
The idea was devised by Lehtinen (1983, 1986).
On the basis of his idea, the customer also has
an influence on the process. It happens quite
often that in the service process the customer is
Services and Service Management
expected to deal with documents, handle devices
and provide data and information. He will improve
or worsen the quality of the service depending on
how prepared he is or how willing he is. Gener-
ally, participation is the act of customer’s active
involvement with the service production and
delivery process, either physically or by giving
resources. This action is expected to yield favor-
able outcomes for both customers and service
companies (see Table 2).
THE MANAGEMENT OF THE
SERVICES
The Management
Concept of Services
Unlike other management issues, it was not
the Anglo-Saxon authors who first defined the
management concept of services. The origin of
the topic was Scandinavia, as the majority of
expert authors come from Finland, Sweden, or
Denmark (Lundkundsen,1982; Norman, 1984;
Grönroos, 1983; Lehtinen & Storbacka, 1986;
Carlzon, 1987). After a few years some US and
British experts participated in this field of research
(Albrecht & Zemke, 1985; Schmenner, 1986). It
is also important to note that since authors have
adopted a market-oriented approach, they use a
number of terms and concepts that come from
marketing (e.g. customer care).
One of the most comprehensive definitions
of the term “management of services” is given
by Grönroos (1988), who states that service
management is:
• The definition of the benefit given to the
customer, which he perceives when tak-
ing advantage of the service offering. In
other words, the comprehension of how
the services themselves, or their physically
attached items and/or tangible goods, can
contribute to that benefit (i.e. understand-
ing the total quality and its continuous
change).
• Understanding how the organization, with
the use of human resources, technology,
physical resources and customers, will
be able to produce that perceived benefit
and quality; and how to convey it to the
customer.
• Understanding how the organization has to
be run and developed so that it is able to
produce the required benefit.
• The management of the organization in
such a way that this benefit and quality is
produced, and the goals of all stakehold-
ers (organization, customers, other parties,
society, etc.) are achieved.
Below are two shorter definitions, in which
there are similar aspects:
• According to Albrecht (1988) service man-
agement is an approach of the overall orga-
nization, which considers the service qual-
ity perceived by the customer as priority
business rationale.
• Schneider& Rentsch (1988) have a similar
approach when they state that those com-
panies that use the basic principles of ser-
vice management, declare, “they consider
services the organization’s core commit-
ment.” It means that this principle prevails
throughout the company and so it is impos-
sible to adopt methods from the production
sphere without modifications.
The operational philosophy of service man-
agement means a change of paradigm for the
whole organization; whether they are basically
manufacturing or service organizations;
• From the product-oriented usefulness to
total usefulness in customer relationships,
• From the short term transactions to long-
term relationships
11
 Services and Service Management

Table 2. Benefits and drawbacks of customer participation (Adapted from Wattanakamolchai, 2009)

Positive outcomes for organization
1. It helps increase productivity as custom-
ers become partial employees of the firms.
2. It enhances two-way communications
between companies and customers; thus, com-
panies will have increased customer feedback.
3. It can help improve perceived service
quality since customers are actively involved
from the beginning of the service process.
4. It will lead to greater repurchase and referrals
especially through the word-of-mouth channel.
5. It can enhance loyalty through Customer
Participation Management (CPM) practice.
CPM is considered a step beyond Cus-
tomer Relationship Management (CRM).
6. It can be used as a criterion to segment
customers leading to companies’ greater
capability of implementing service differen-
tiation strategy.
Positive outcomes for customer
1. It can enhance customer satisfaction.
When customers are actively involved
in the service process, they tend to have
a higher control over the outcomes and
research shows that this control will gear
out- comes towards customer preferences.
2. It can enhance customer skills in
utilizing the service leading to a faster
service process in each subsequent en-
counter and ultimately greater satisfaction.
3. It can increase the likelihood that customer
expectations are met and desired benefits
are attained because customers are actively
involved in the input of the service outcomes:
service specificity, pro-duction, and delivery.
4. It can increase customer enjoyment because
of the interaction during the service process.
5. It can enable customers to receive various
benefits such as discounts, greater conve-
nience, and more control over service out-
comes as an exchange for their participation.
Negative outcomes
1. Some service organizations fail to edu-
cate their customers on how to effectively
participate in the service system. As a result,
these unknowledgeable customers may
slow down the service process leading
them to feel less satisfied with the service.
Moreover, this lengthy process may ad-
versely affect other customers’ satisfaction.
2. When customers fail to perform their
required tasks successfully, employees may
find it hard or even impossible to deliver
desired outcomes. For example, a passenger
who comes to check in for an international
flight without proper travel documents will
unavoidably be denied by the check-in agent.
3. Research shows that employees tend to
suffer emotionally from frustrated custom-
ers even though the cause of unacceptable
service process is due to the customer’s
own inadequacy and incompetence. These
employees are predicted to be less motivated
and less productive and are likely to quit.
4. Some scholars believe that customer
partici-pation can cause unnecessary un-
certainty to the service organizations.
5. A customer who provides inputs into the
service process may be less satisfied than
those who do not, especially when the service
outcomes are better than expected. This is
because participating customers think that they
earn some credits for the successful outcomes.
Consequently, they do not appraise the service
providers as high as they normally do when
they less participate.

• From the quality of the core product (core Differences in Management

service) (technical quality of the output) to
the total quality perceived by customer in
the long-term relationships;
• From the production of a technical solution
(or technical quality of product/service), as
the main process of the organization to the
total usefulness and improvement of total
quality, as the core organizational process.
Compared to traditional thinking, service
management means change in two basic areas:
(1) focusing on the external effects of internal
performance and (2) focusing on process rather
than structure.
Principles
Profit Generating and
Business Principle
A significant difference here is that general eco-
nomic principles are shifted from the achievement
of internal efficiency to overall efficiency as an
ultimate goal. Here profit will be generated by the
customer’s perception of quality. Profitability is
possibly but not necessarily achieved by econo-
mies of scale, in other words mass production.
For services it may happen that the usual focus on
volume will have a counter effect. Heskett (1980)
came up with a proposal that instead of the usual

12
Services and Service Management
economies of scale we should use the concept of
market efficiency. According to this concept the
competitive advantage comes not from cost ef-
ficiency, which is due to economies of scale, but
from being market oriented. Of course there are
service outlets where big volume counts, such
as fast food outlets, but local market features are
also a consideration.
In service management the handling of market
efficiency and customer care are crucial. Internal
efficiency is not be neglected either, but it does not
have a primary role. When internal aspects start
dominating, such as cost-efficiency and produc-
tivity, quality considerations lose significance.
Decision Making Authority
As the services have special features and custom-
ers have their quality expectations, key decisions
have to be made as close as possible to the point of
transaction or interface between the organization
and the customer. In an ideal case the frontline em-
ployees, who are actively involved in the ‘Moment
of Truth,’ should be authorized to make prompt
decisions. If they do not have this authority, many
quality problems may not be handled in time, or
perhaps not at all. This does not mean that the
frontline employees should have a solution to all
customer problems, but at least they should have
the means by which to decide where to turn or what
action should be taken. Lacking this empowerment
to make decisions, the employees are impaired
by a rigid system. As Gummesson argues (1989):
“You can stupefy your frontline service personnel
by making them robots with discretion to handle
only a limited number of standard operations. Or
you can empower them to also handle deviations…
thus being more efficient.” Thus, it can be seen
that when there are quality issues perceived by
the customers, decisions have to be made at the
lowest level. Management must of course make
the strategic business decisions, but decisions
regarding quality issues need to be dealt with by
the frontline personnel.
Organizational Aspect
Traditionally all organizations are built up and
operate in a structure where leadership and control
take place through processes. It often results in
rigidity, promotes centralization, and hinders a
vertical flow of information.
In service companies these mechanical organi-
zations need to be replaced by a culture in which
the focus is on the balance between external and
internal efficiency, rather than structure and su-
pervision. In a culture, which puts the emphasis
on flexible business solutions, the core business
value is the capability to mobilize basic resources,
which facilitate customer relations. To achieve
this, organizations need to have a different form,
or a project-oriented structure.
Leadership Aspect
Unlike traditional management methods, service
organizations do not reward their employees on
the basis of meeting standards. This is because
services cannot be measured by standards. On the
contrary, the employees need some empowerment
to handle the standards set by individual custom-
ers, and make necessary quality corrections. Thus,
guidelines function better than rigid requirements
in such an environment. One has to form a service
culture that focuses on assisting and encouraging
employees’ responsibility, and decision making
rather than meeting predefined standards.
Reward System
Whereas in traditional reward systems, rewards
are based on items that can be measured (along
with control), in service companies rewards are
based on the quality perceived by the customer. In
such cases it is difficult to talk about predefined
standards relating to a reward system.
13
 Services and Service Management

Evaluation Criteria (1993) calls the chains of causes of problems or

Due to differences in supervision and reward cri-
teria, evaluations are also carried out differently
in service companies. In line with the principles
of management and control, as well as endeavors
to reach efficiency in output, one has to measure
customer satisfaction and quality of service. The
internal efficiency indices are still used to main-
tain capital and labor efficiency, but it is external
efficiency which has to be the dominant feature
(Grönroos, 1990). The changes of the management
principles can be summarized in Table 3.
Differences of Service Strategies:
The Vicious Circle
It is difficult to say whether a service is successful
or not. This is because intangibility and greater
intensity of personal contact than that of produc-
tion companies make the criteria for success
unclear. Nevertheless, when an organization can
identify the quality features of a service, it is on
the way to understanding its own operation. On
the other hand if any management error or qual-
ity problem occurs, a vicious circle may start,
which is very difficult to get out of. Normann
faulty strategic decisions the vicious circle of
service companies. Grönroos (1990) calls the
same phenomena ‘strategic management traps.’
These common phenomena and mechanisms are
as follows (Normann, 1993):
1. Complicating the Service management
system: Supplementary services are added
to service offerings that result in the dete-
rioration of quality. For example, when an
airline pilot wants to pamper his passengers,
he may offer a special luxurious meal on
the menu, which increases preparation time
and so leaves less time for preparing other
standard meals. Thus, the original quality of
meals considerably deteriorates. The system
of service is damaged and the external and
internal image will deteriorate as well.
2. Growth without control: Services also have
the danger that geographic expansion can
be hindered by a lack of human resources
and / or qualifications. The services that
are successfully used in one place may
fail elsewhere as in the case of branches
of universities.

Table 3. Principles of service management: a summary (Adapted from Grönroos, 1990)

Basic principles Notes

1. Profit generating and Profit is attained by quality service perceived by Issues about external and internal efficiency
business principle customer (customer satisfaction, productivity of capital and
labor) have to be completely integrated.
2. Authorization for mak- Decision-making has to take place at the closest Some strategic decisions have to be made centrally.
ing decisions possible interfaces of supplier and customer.
3. Organizational aspect The ultimate goal of the organization and opera- Flat structure, no unnecessary levels
tion is to mobilize resources for the support of
frontlines.
4 Leadership aspect Managers and leaders support and encourage staff. Only the vital supervision is carried out.
5. Reward system The basis of reward is generating the quality as All possible aspects of service quality have to
perceived by the customer be taken into account, but not all of them can be
included in the reward system.
6. Evaluation criteria The measurable goal is customers’ satisfaction To measure the internal productivity and efficiency,
with the quality of service internal evaluation criteria have to be utilized too

14
Services and Service Management
3. An inappropriate Power Structure: The
indistinct power relations between central
and local units or aggressive centralization
may hinder the personnel working on the
front line. It is particularly problematic
in low-status jobs, because it is more dif-
ficult to motivate people whose indepen-
dence at work is limited. Therefore too
much centralization should be avoided in
service organizations.
4. Mismatch between service package and
customer expectations: Service provid-
ers have to be aware that customers do not
necessarily perceive services as core or
auxiliary elements. So it may happen that
if the supplementary element is faulty, the
customer questions the entire service pack-
age. For example, many people forget that
the basic task of an airline is to take pas-
sengers/cargo from one place to another.
The passengers consider the facilitating
elements very important as well, like how
fast the check-in takes place, the quality of
the meals, etc. In addition, when the passen-
gers’ expectations are not met, they become
upset and the anxiety will be passed on to
the check-in personnel. Needless to say,
nobody likes working for a company where
the employees are scolded all the time and
someone always argues with them. Therefore
the supplier needs to know exactly what he
supplies, and what quality expectations a
customer may have.
5. Bad or Sloppy operations management:
An old slogan of the retail trade is “retailing
is detailing” (i.e. in retail trade everything
depends on details – more so for services).
The manager has to take into consideration
that each employee sees his or her area as
the most important, and wants things to go
smoothly. Therefore they want the organiza-
tion to provide all the resources for fulfilling
their duties, and thereby ensuring the smooth
running of the service system. A guarantee
of sufficient service is motivated personnel
as without them it is almost impossible.
Without people quality cannot be upheld.
6. Inappropriate economic control systems:
Besides the above human factors, there are
the other elements, like supervising systems
too, which have to be chosen and designed
according to the features of the service. If
the operational management has a low stan-
dard (e.g. errors or deficiencies may arise in
the controlling system) it also leads to the
formation of a vicious circle. Roger Dow,
Commercial and Marketing Manager of
Mariott said: “We used to reward restaurant
managers for things that were important to
us (e.g. food costs). When have you heard
the customer ask for the restaurant’s food
costs? You have to reward what the cus-
tomers are looking for in your business”
(Grönroos, 1990).
In services, cost cutting as a means of profit
generation can be problematic. The traditional
ways of cutting costs, although they seem to
work on the level of internal efficiency, will turn
out to decrease external efficiency, and so qual-
ity will deteriorate, resulting in less profit. This
is why Carlzon (1987) suggests the method that
was introduced in SAS: they divide the direct and
indirect service costs into good costs and bad
costs. Good costs that are incurred by frontline
personnel, back office or in the training of staff,
may not be decreased as decreasing these costs
will automatically result in low quality. However,
decreasing good costs is a general tendency of
management and bad costs are not touched, like
unnecessary administration or maintaining overly
complex hierarchies (Carlzon, 1987). According
to a generally accepted view, in services 35%
of operational costs are due to the correcting of
other people’s mistakes. This leads us back to the
afore-mentioned problems of human resources
and quality.
15

7. Inability to attract staff: A vicious circle
can be seen in this way: if the quality of
a service declines, its market and social
reputation follow suit. Thus, it will be able
to attract only less motivated, less qualified
manpower, which will further deteriorate the
quality of service that demands significant
personal interaction.
Management has a significant role in avoid-
ing the vicious circle, or transforming it into a
positive cycle by dealing with questions such as:
How far they can affect the company culture? Is
there an organization culture that provides a firm
foundation for the targeted quality service? How
much are the employees aware of the principles
and values, on the basis of which the organization
culture works? Do the employees represent and
use these principles and values when they are
contacting the customers?
The Cycle of Failure
Lovelock & Wirtz (2004) argue that it is a stra-
tegic trap when a poorly qualified workforce is
employed for simple repetitive labor processes,
like customer services, department stores, fast food
restaurants, etc. This strategy leads to failure on
two levels: on the level of the employees on the
one hand, and the level of the customers, on the
other. (Figure 3)
The Cycle of Failure on the employee cycle
starts with the narrow definition of the job roles.
It has a dominance of rules over the service, and
technical measures of supervision have too big a
role. The low wage strategy is accompanied by
reducing costs of recruitment and training. As a
result, there will be bored employees, who lack
the ability of responding to the customers’ prob-
lems; so they will be dissatisfied, and will have
a negative attitude to providing services. For the
organization it will imply low quality of service,
and high staff turnover. The vicious circle con-
tinues, so that due to the decreasing profit, the
16
Services and Service Management
organization will recruit even cheaper labor that
will be working in this demotivating environment.
The Cycle of Failure on the customer cycle
starts with an emphasis on attracting new custom-
ers, because the existing ones are dissatisfied with
staff performance, the continuous staff turnover,
and the lack of continuity. Customers cannot be
expected to be loyal when they are constantly
confronted by new faces and are unable to build
a relationship between themselves and the staff.
Eventually, these customers will end their relation-
ship with the organization, just like the company’s
own employees will. Therefore there is a constant
demand for newer and newer customers to main-
tain the revenues despite problems arising from
a lack of continuity.
Lovelock & Wirtz (2004) claimed that the
shortsighted, cost-oriented managers are to be
blamed for the above cycles. (See “good and bad
costs” above)
The Cycle of Mediocrity
It was Lovelock (1995) who called attention
to another vicious circle regarding the service
strategies. It can be found in large, bureaucratic
institutions, which are not exposed to little or
no competition, so they are not compelled to
introduce more competitive work methods. In
such an environment the quality of the service
is defined by rigid rules; the goal to be achieved
is the efficiency of operation and standardized
service. The personnel are expected to spend
their whole life in one position, where they have
little responsibility and their job is monotonous.
Salaries and promotion depend on the time spent
at the organization. Training focuses on technical
details and rules, rather than the development of
skills. Work is tedious and repetitive; there is no
opportunity for displaying initiative.
Unlike in the Cycle of Failure the employees
are rather well paid, and their job security is high.
They do not feel the consequences of their limited
marketable knowledge of skills, so the staff is less
Services and Service Management
Figure 3. The cycle of failure
likely to leave the company. The customer side has
the implication that although customers are not
satisfied with the low standard of service there is
nowhere for them to go, because the organization
maintains a monopoly, or quasi-monopoly. (Or
else, even if they tried another service provider,
it would be equally bad). Therefore they may
become hostile towards the organization and its
employees. Employees resort to defense mecha-
nisms like withdrawing into indifference, refer-
ring to rules, or countering rudeness of customers
with rudeness. All this will result in a Cycle of
Mediocrity (see Figure 4), where the customers
continually complain to the indifferent staff and
other customers about the quality of the service.
In such an environment the customers show little
incentive to contribute to a better service provision
(Lovelock, 1995).
OPERATIONAL AND ECONOMIC
PRINCIPLES OF SERVICES
If we want to analyze the culture of services, we
need to clarify what is the business rationale that
unquestionably penetrates into everyday opera-
tions. What do the organizations think about the
sense of their business activities? By what prin-
ciples do they organize their activities? What are
the organizational assumptions, upon which other
cultural levels are based?
17

Figure 4. The cycle of mediocrity
Challenges for Management
Regarding the Types of Services
The Schmenner matrix (1995) shows that the
management has a number of dilemmas, which
have to be considered along the two dimensions,
namely work intensity and extent of interac-
tion. The capital-intensive services have two
basic implications:
• Investments into real estate, buildings and
equipment
• Technological development in the industry
Capital-intensive processes often do not meet
the total capacity requirements, so the needs have
to be handled in such a way that using incentives,
the demands are redirected from peak periods to
18
Services and Service Management
less busy periods (as mentioned on page 3 – see
section on perishability). When the capacity is
inflexible, it means that the providing of the
service needs to be timed well. In case of labor-
intensive processes the emphasis falls on plan-
ning, managing and controlling the labor force.
When it comes to opening new outlets, the lack
of qualified labor may be a problem. In connec-
tion with interaction and customization, one can
say that the low-performance employees do not
have enough marketing skills to supply a suitable
service for the customers, even if the service is
relatively impersonal and standardized. In such
cases, it is the location and the environment that
emerge as key factors. As the service is standard-
ized, the process of its supply is not problematic.
The organization has a classic pyramid structure,
with rigid organizational functions.
Services and Service Management
If the management wants to have a higher
degree of interaction and customization, the
management needs to accept higher costs and
deal with a more qualified workforce. The big
challenge is to maintain existing quality staff
with relatively low costs. Staff motivation may
happen by clearly outlining the possibilities for
promotion within the company. The manager-
subordinate relations are completely different in
these person-oriented cultures and so it is vital
to instill a sense of organizational loyalty with
highly valued employees.
The globalization of services differs from the
global deregulation/diffusion of standard products.
In a service industry one can distribute only
uniform systems. These systems are, however,
handled by people with different cultural roots and
attitudes, which make uniformity difficult. There
are two models of services that are international
and prevail in global economy: McDonaldization
and Disneyization. The former involves Ford’s
and Taylor’s principles of organizing work in the
area of services The latter also seeks to meet the
organizational and human resource requirements
of the experience of consumption, the seizing
of the moment, which is typical in post-modern
societies. One dilemma which has been pondered
for decades in the service industry is the choice
between customization and standardization. Both
have their marketing and economic rationale,
but we can see them prevail in diverging areas.
The central element of service management and
marketing is fulfilling the individual needs (i.e.
customization) while standardization is based on
the principles of classical economics and considers
the increase of profitability as the primary success
criterion of economic activities. To achieve cost
cutting and economies of scale, standardization
is chosen as the way forward. In contrast, service
management regards fulfilling customer demands
economically a number one issue, so quality is put
into focus rather than the reduction of unit cost.
(Normann, 1993; Grönroos, 1990).
Standardization of Services:
Economics of Scale
Standardization of services means the final result
of the service is always the same (e.g. McDonald’s
hamburger) (Sundbo, 2002). According to this
rationale, the important attributes are price and
quantity; the customer rates things by type and
quality. Beyond this, it is the price that counts.
Therefore there is a constant endeavor for the
reduction of costs, which leads to the increase of
profitability and reductions of price, too. Theo-
retically it guarantees a price advantage for the
company. The profit of particular products may
decrease, but as the organization will sell much
more of them due to lower prices, it will ultimately
gain a larger profit. Standardizing services has the
following advantages for the organization:
• Customer satisfaction (at all times they get
the same cheap product which is expected)
• Quality assurance improves
• Influencing costs is easy
• Opportunities to increase profitability
• Innovation can be part of a system
Customers are fairly well informed about stan-
dard services. Because of the uniform character
of services the information acquired from others
is valuable; the service provider can also present
the process, when another customer is using it. It
means the used service is represented as a constant:
an ‘all-time good.’ This is the standard and will
also be the expectation. Standard services also have
the advantage that they are repeatable. So, if there
is a quality mistake, it can be corrected. However,
requires a certain non-market element, which does
not exist in economics: trust. This approach and
practice can be seen in the service market.
The above-mentioned spread of standardiza-
tion in the global market is called McDonaldization
(Ritzer, 1993, 2004). The pledge of globalization is
the escalator-methodology of production systems,
as a possible way of providing services. This prac-
19

tice exists not only in the operation of fast food
restaurants but a number of service providers also
follow the same business rationale: “The process,
by which the principles of fast food restaurant
are coming to dominate more and more sectors
of American society as well as of the rest of the
world.”(Ritzer, 2004). McDonaldization, as an
operational rationale, has the following features:
• Efficiency: like customers, the employees
themselves follow the steps of a predeter-
mined process in the interest of efficiency.
Here the leader closely monitors the work
of the specially trained employees. All
the rules and regulations help supervisors
maintain efficiency.
• Calculability: It means that the quantity
elements have priority. In these systems
quantity becomes a quality indicator. The
attraction of services is reached by empha-
sizing quantity indicators (size, time, etc).
All in all, the encouragement of custom-
ers to use more and more services contrib-
utes to the increase of profit of the service
provider.
• Predictability: One of the most essential
elements of McDonaldization is stabil-
ity. It is exempt from surprises and vari-
ability. This is ensured by strict organiza-
tional rules, which the managers enforce
in the business behavior via scripts. The
employees have to know these scenari-
os word for word, and apply them in the
appropriate situation
• Control through non-human technol-
ogy: The fourth element of success is
control, which refers to both the service
providers and the clients who use the ser-
vice in the organization. The clients are not
aware of this, but features like having to
stand in a line, a limited menu and uncom-
fortable seats all encourage customers to
buy and use the service quickly, which is
an important element of the efficiency of
20
Services and Service Management
the system. The majority of the members
do predetermined simple jobs, where the
impact of technology is greater than mana-
gerial control, which excludes the occur-
rence of mistakes. From a cost-efficiency
point of view, this tendency is getting more
and more dominant (Ritzer, 2004).
Customization: Economics
of Expectations
The economic rationale of customization lies on
the basic principles of service management and
marketing. One premise of this is that a service
cannot be stored. It is used by the receiver of
the service, the client, at the very moment of its
production. It is difficult to make a difference
between the real customized product and a pe-
ripheral service. The extra element of service is
so important to the customer, that he regards the
whole package as individualized for him alone. In
this way the marketing rationale of the customized
service is similar to the old-fashioned institution
of servants. It was generated not by the principle
of profitability, but from a desire for luxury. Ser-
vants did not do a lot of useful things, but from a
prestige and luxury point of view, it was good if
some of them were available. Likewise an extra
element of service indicates something individu-
alized and thereby luxurious when compared to
standardized items.
Customization has the following advantages
for the organization:
• Customer satisfaction (their individual
needs are satisfied)
• Quality: perceived quality is guaranteed
(the customer feels that he is taken care of)
• Possibilities to raise prices
• It is easy to increase the sales of man-hours
(because the task is rarely defined and cus-
tomer needs can be satisfied)
Services and Service Management
• Innovation process starts from the cus-
tomer. (Therefore its market success is
ensured)
Customization shakes the foundations of
neoclassical economic thinking. The customer,
when he buys the service, expects it to meet his
expectations, or to solve his problems. His satis-
faction depends not only on whether it has met
his previous expectations, and technically solved
his problem, but whether he has gained such an
experience, on the basis of which he thinks that
his problem has been solved. From this aspect the
market is dominated not by quantity and price,
but quality and expectations. Unlike in traditional
approaches, it is not worth seeking an optimal
model, because at the beginning of the process
neither the customer, nor the service provider can
exactly identify which solution they will find the
most satisfactory. Thus, on the basis of econom-
ics of expectations, the customer considers the
service process as a result, as he does not have
an exact picture or information of the possible
outcome. Therefore trust, as an economic term
(Williamson, 1975) should be replaced by belief
by which the user of the service can never define
exactly, whether he got the right quantity at the
right price. The customer satisfaction therefore
depends on his belief as to whether he was given
the service according to adequate parameters.
When he is convinced of this, he is often willing
to pay a higher price for it. (See the services of
reputable consultancy companies)
Modulization: Economics
of Compromises
Sundbo (1994, 1999, 2002) considered that the
conflicts of these two theoretical approaches
of customization and standardization might be
resolved with a compromise, which he called
modulization. The idea itself is not alien to
economists; it is referred to in production as
“mass customization.”(Szabó, 2003). Here, the
compromise means an attempt by service provider
to unite the advantages of standardization (relating
to productivity) with customization (individual
customer satisfaction). They sell customized
products at high prices, behind which there are
standardized and cost–effective processes. For
this, the service provider needs standard modules
in the processes, which may be slightly changed
by adding peripheral services, and which are
perceived as highly individualized by the cus-
tomers. Of course, in the long run the customers
cannot be “swindled” and we should take a look
at the economic side of this approach. This is the
economics of compromise: selling a partially
customized service at a relatively low price. The
production of the service is standardized, and
starts being customized from the moment when
the customer enters the process.
In production, modulization’s counterpart is
flexible specialization. It is not a new concept
(Piore & Sabel, 1984), but since the borders of
production and service activities are blurred, it is
important to understand the two systems together.
Companies are supported by information and
communication technology, which are suitable to
cover the above-mentioned economic rationale.
The globalized form of the modularized service
rationale is called ‘Disneyization.’ “The process
by which the principles of Disney theme parks
are coming to dominate more and more sectors
of American society as well as the rest of the
world” (Bryman, 2004, p.1). It may seem that
Disneyization is the opposite of McDonaldization,
but the service providers who put the emphasis
on productivity, place their production into such
a physical and human environment where the
output is a perceived individualized consumption.
It is the method of making a service individual-
ized that means a challenge for the organization’s
operation and management, while maintaining the
profitability-centered economic rationale as well.
Disneyization ‘re-packages’ service modules
adding a few peripheral service combinations
that, because they are frequently used, have low
21

unit costs and yet still provide the feeling of
being customized. In contrast to the manpower
required for standardized services, modulization
needs a well-qualified and motivated workforce.
As the customer is prepared to pay a higher sum
for the modularized service, on a cultural level it
is not permitted that the declared and the actual
values diverge from each other. The features of
Disneyization are as follows:
• Theming: Putting the premises and ob-
jects into such an environment that is not
originally associated with them, or far be-
yond them. For example, medieval restau-
rants, shopping malls with streets of the
Wild West, historic luxury hotels, etc. This
happens in order to increase their appeal.
• Hybrid consumption: The general trend
is that traditional consumption is placed
into premises, where it is difficult to sepa-
rate them (Shopping/museum, shopping/
sport event/doing sport, etc.). From the
supplier’s point of view the goal of hybrid
consumption is that the customer is made
to use the service longer than planned.
• Merchandizing: Selling products, which
are covered by copyright, and/or display
logos and images (e.g. products of Disney
films, products of famous universities with
their logos). It is an element linked to hy-
brid consumption.
• Performative labor: a key element of
Disneyization from a leadership and hu-
man resources point of view is to create an
organizational staff, which is well qualified
and provides adequate individual percep-
tion for the customer of standard quality.
Playing a well-defined role can generate
such behavior, which coined the term
“emotional work” (Bryman, 2004).
22
Services and Service Management
THE SERVICE-CENTERED
RATIONALE
It is important to understand changes in rationale
in the field of service marketing and manage-
ment. It helps to understand the operational and
economic principles of services. Penrose (1959)
suggested that “it is never resources themselves
that are the ‘inputs’ to the production process, but
only the services that the resources can render.”
At the beginning of 1980’s, the dominant
rationale in marketing literature was the product-
orientation, related to classical and neoclassical
economics. According to Vargo & Lusch (2004a),
the dominant approach is that “value is embedded
in matter through manufacturing (value-added,
utility, value in exchange); goods come to be
viewed as standardized output (commodities).” We
can realize this point of view when we examine
McDonaldization. But, nowadays, McDonald’s is
not functioning differently; McDonald’s is not a
pure McDonald’s. If we compare the dimensions
offered by Bryman (2004) and the practice of
McDonald’s, we can draw the consequence that
the fast-food restaurant company had to conform
to customer expectations. Thus, it introduced the
themed menus based on unique customer’s needs.
McDonald’s had to break up its rules and evolve
new functions in order to provide the satisfaction
of its customers.
Vargo & Lusch (2004a) argue that “marketing
has shifted much of its dominant logic away from
the exchange of tangible goods (manufactured
things) and toward the exchange of intangibles,
specialized skills and knowledge, and processes
(doing things for and with), which points to a
marketing rationale that integrates goods with
services and provides a richer foundation for the
development of marketing thought and practice.”
Briefly, we can recognize marketing has moved
from a product-centered view (importance on
tangible output and discrete transactions), to a
service-centered view (importance on intangibil-
ity, exchange processes, and relationships).
Services and Service Management
Kandampully (1998) stated “the primary objec-
tive of the service provider is identical to that of
the tangible goods producer (i.e. to develop and
provide offerings that satisfy customer needs),
thereby ensuring their own economic survival.
To achieve this objective, service providers will
need to understand how customers evaluate the
quality of their service offerings, how they choose
one organization in preference to another and on
what basis they give their long-term patronage.”
Thus, the service-centered rationale repre-
sents a reoriented philosophy that is applicable
to all marketing offerings, including those that
involve tangible output (goods) in the process of
service provision.
A fine example for following this change in
marketing, can be seen in the concept of service
quality perceptions. Garvin (1987) points out
that quality is multidimensional and that each
of its dimensions can be used strategically to
gain competitive advantage. His eight dimen-
sions of service quality were constructed with
a product-centered approach: (1) performance;
(2) features; (3) reliability; (4) conformance; (5)
durability; (6) serviceability; (7) aesthetics; (8)
image. Zeithaml, Parasuraman, and Berry (1990)
defined 5 dimensions of service quality in service-
oriented approach: (1) tangibles (appearance of
physical facilities, equipment, personnel, and
communication materials); (2) reliability (ability
to perform the promised service dependably and
accurately); (3) responsiveness (willingness to
help customers and provide prompt service); (4)
assurance (knowledge and courtesy of employees
and their ability to convey trust and confidence);
(5) empathy (caring, individualized attention that
the firm provides for its customers).
A rationale that views marketing as a con-
tinuous social and economic process in which
resources are paramount, begins to unify major
areas such as customer and market orientation,
services marketing, relationship marketing, qual-
ity management, value and supply chain manage-
ment, resource management, and network analysis.
The basic premises of the emerging paradigm
are (1) skills and knowledge are the fundamental
unit of exchange, (2) indirect exchange masks
the fundamental unit of exchange, (3) goods are
the distribution mechanisms for service provi-
sion, (4) knowledge is the fundamental source
of competitive advantage, (5) all economies are
services economies, (6) the customer is always
a co-producer, (7) the enterprise can only make
value propositions, and (8) a service-centered
view is inherently customer oriented and relational
(Vargo & Lusch, 2004a, 2004b, 2006).
THE HUMAN FACTORS
OF SERVICES
While some time ago there was a prevailing ste-
reotype that “providing services usually needs
less qualified labor,” nowadays more and more
surveys justify the opposite (Illeris, 2002). One
can say that in this sphere besides professional
knowledge, great emphasis is placed on personal
qualities. With these services, the providers are in
a constant relationship with their customers and
thus the communication and socialization skills
and abilities are seen as of key importance.
While for a production company the internal
tensions do not directly influence the product
and its quality, in the case of services, due to the
continuous interaction with the customer, behav-
ioral mistakes can be seen at once. In the case of
service provision it is difficult to separate what
can be considered a professional and a behavioral
mistake. (Does a university professor, a reputed
expert provide sufficient service, when he is not
a good lecturer? From the side of the customer he
gives insufficient service.) This is the reason that
in fast food restaurants and other service factories
the different elements of behavior towards custom-
ers are forced into rules and standards.
23

Internal Service Market
As mention earlier on page …, one characteristic
feature of a service organization culture is that it
is much more visible for the customer than with
production companies. The employees are always
on “display,” so their internal relationship may
have a grave impact on the perceived quality of
the service. The internal values are important for
two reasons. On the one hand if we accept the
“holographic model of the organization” (See The
Culture-Based Leadership Model of Services), it is
difficult to behave in a customer-oriented way, if
the internal personal and professional processes do
not support this. On the other hand, the frustrated
position arising from the disharmony of external
and internal relations cannot be maintained on an
individual level either.
Following this, we get the concept of internal
marketing and the internal client, which is worth
noting from a management aspect:
1. The members of the organization are the
primary market, a so-called internal market,
which is the market of inward service offer-
ings as external marketing programs
2. A coordinating and goal-oriented approach,
which fully takes into account the employees,
harmonizing the internal endeavors with the
external efficiency of the organization.
3. A leadership approach, which considers the
staff, their functions, and working units as
internal customers, who have to provide a
service in the same fashion as for the external
partners. (Grönroos, 2000)
The Concept of Internal Marketing
The concept of internal marketing which em-
phasizes the human factor more than ever, arises
as a strategic issue. Its basic assumption is that
service-minded behavior is not to be displayed
exclusively to the external partners in a successful
24
Services and Service Management
and authentic way, but internally as well at core
of the operation.
“Internal marketing is a leadership philosophy,
which considers internal personnel as customers.”
Grönroos, 2000)
However, internal marketing is not identical
to human resource management; although they
have a number of features in common. HRM uses
a lot of methods that can be utilized in internal
marketing. There are three essential propositions
of internal marketing: attitude, communication,
and psychological contract:
• An essential element of organizational cul-
ture should be the ability to influence the
attitude of members. This may be a tool for
control, by which the leadership ensures
that the employee, who is in a continuous
relationship with the customer, conveys the
expected professional and personal behav-
ior. At the same time it is worth noting that
the lack of harmony between levels in the
Schein-model cannot be maintained in the
long run, and may lead to mistakes, which
will be sensed by the partner as quality
mistakes. That is why it is important to in-
fluence the value–level, which is beneath
the attitude level, in the long run.
• Continuous communication is needed for
presenting organizational procedures, de-
scriptions of work processes, organization-
al processes and descriptions of products
and services. It is important that the em-
ployees are well informed about products
on offer, campaigns, sales, and advertise-
ments. Failure to do so may well have a
harmful effect on the whole organization.
• The basis of value for implementing in-
ternal marketing has to be organizational
trust. This unquestionable trust is the foun-
dation of the culture, which is implied in
espoused attitudes. This situation of trust
Services and Service Management
is called psychological contract (Grönroos,
2000), which tentatively exists among the
members of the organization. It is also
relevant for the organization-client re-
lationship, as a means of ensuring long-
distance cooperation.
Three Levels of Internal Marketing
There are three situations that can highlight the
internal marketing approach:
1. Establishing a service culture in the organi-
zation, which emphasizes the importance of
services among employees.
2. Maintaining the service-oriented nature
among members of the organization
3. Introducing new products and services into
the market, or applying new internal technol-
ogy, systems and service methods.
All these methods remain unproductive if they
are not supported by a service-oriented organiza-
tional culture. Therefore the following goals need
to be reached to make internal marketing effective:
• Employees have to be empowered and
authorized to understand and accept the
mission, strategy, and goals of the organi-
zation, as well as the external marketing,
campaigns, and processes.
• Forming good relationships between mem-
bers and the organization.
• Forming a service oriented leadership style
in management.
• Developing service-centered communica-
tion skills of all employees.
Reaching the first goal is a key issue, because
if the employees do not know or identify with the
service-centered system of values that serve the
organizational strategy, they do not know why
there are expectations of them. A service-oriented
leadership may assume that the employees be-
have according to expectations without continu-
ous control as continuous control is likely to be
counterproductive. At least the leadership need
to be sure that the service oriented organization
culture is fully understood and accepted. This
requires time and will involve much more than a
week-end training course.
Internal Marketing Activities
There are two activities that may be seen as the ba-
sics of leadership and cultural aspects of services:
1. Training: Training, as a tool for develop-
ing skills and changing attitudes, influences
internal marketing in various channels:
◦◦ It may help the holistic approach of
the organization in understanding
the vision of the company, by which
the strategy and the whole marketing
process will be comprehensive on an
individual level.
◦◦ It may help in the development of the
expected attitude. Thus the service
strategy and the marketing approach
can be implemented.
◦◦ It may help in developing the com-
munication, customer care, sales, and
service skills.
To achieve this, employees need to understand
the “big picture” of the organization, so that they
can become committed, and the psychological
contract could be created between the organization
and the employees. Training can be a key device in
helping the leadership to develop an attitude that
ensures adequate quality in providing a service,
and in the implementation of expected changes.
2. Managerial support and inner dialogue:
There are numerous methods of managerial
support, some of which are as follows:
◦◦ Formal training on a daily basis
25

◦◦ Regular support and encouragement
of employees on a daily basis
◦◦ Involving the employees in the plan-
ning and decision-making processes
◦◦ Providing frequent information to em-
ployees and two-way communication
in formal and informal relationships
◦◦ Forming an open and encouraging at-
mosphere in the organization
The efficacy of the above is greatly increased
by the continuous involvement and support of the
leadership. Further tools of internal marketing
can include:
• Internal information to all the staff, and
support of information
• Human resource management
• External information of the public
• Support by system and technology
• Correcting errors in internal service
• Marketing research and market segmenta-
tion (Grönroos, 2000)
Special Features of
Service Leadership
Reddin’s Three-Dimensional
Leadership Theory Based on
Hersey-Blanchard’s Situational
Leadership Theory
The operation of the service companies has chal-
lenges not only on an executive (management)
level, but on the level of leadership as well.
Below, we shall introduce a possible approach to
leadership, which is based on leadership theories.
Public administration, faced with social and
economic expectations, must follow different
guidelines, and apply different tools. In the public
sphere the previous input-oriented management
aspect has to be replaced by an output-oriented
one. In Reddin’s opinion, efficiency is the measure
by which a manager achieves results and as he
26
Services and Service Management
is in a leadership position, results are expected.
The science of leadership covers this concept of
management efficiency. A leader’s primary func-
tion is to be efficient. Efficiency must be measured
not by output, but by “investment” (i.e. input).
In other words, not by what the manager did, but
what he achieved (Reddin, 1981). When we talk
about output-oriented public management instead
of input oriented, we are applying the Reddin-
model to leadership.
Reddin’s three-dimensional model was the
subject of research at Ohio State University, but
as it has been interpreted and extended in different
ways, the different forms of leadership have gained
a broader spectrum. In Reddin’s interpretation
situation management involves the 5 ‘situation
factors,’ namely (1) the organization, (2) the
method of work, (3) managers, (4) colleagues, (5)
employees, where leadership authority is typical
of people who are active in their adaptation to
situations, rather than passive. All the five factors
challenge the leaders, and challenge them to apply
the style that is most suitable for the situation,
as a contribution to efficiency. (Thom & Ritz,
2000, p. 342) Leadership behavior is manifested
in two dimensions in a coordination system in
four basic styles:
1. Contact-oriented
2. Integration-oriented
3. Procedure-oriented
4. Task-oriented (Thom & Ritz, 2000)
These four leadership styles, depending on
how the third dimension dominates, that is how
much it is in accordance with the situation. With
the additional third dimension, a further four
leadership styles emerge: The greater the shift
towards efficiency, the more suitable the style is;
the less so, the less suitable the applied leadership
style. (Figure 5)
1. The bureaucrat type of leader, who applies
rules and regulations, provides a high degree
Services and Service Management
Figure 5. Reddin’s three-dimensional leadership theory
of efficiency and conflict free operation in
the given framework. Such a leader works
in a reliable away, he is correct, sensible and
has self-control. This type of leadership is
often found in public administration.
2. The developer, contact-oriented style is
manifested in a high degree of dedication to
the employees; he supports them, and makes
sure that the atmosphere is cooperative and
trusting. This style is typical in research
centers, and in the area of internal trainers.
3. In the case of task–oriented leadership style,
the emphasis is on performance and indica-
tors of outputs. The benevolent autocrat
manager guides his team with experience,
active participation, and personal drive.
He consults his team about the situation,
but he makes decisions on the basis of his
own professional knowledge. This kind of
leadership is effective in production and
output-oriented areas, where the degree of
standardization of the processes is high.
4. The executive type accepts and develops the
personality of the colleagues and coordinates
the tasks of the team. It is applicable in project
teams, where the specialists work on their
own, they have clear-cut targets for costs,
time, and quality. (Thom & Ritz, 2000)
CULTURE-BASED LEADERSHIP
MODEL OF SERVICES
Assuming that leadership is a dominant influential
factor in culture, it seems that the service institu-
tions, faced with a series of internal and external
challenges, need different leaders. It is accepted
that features of the internal operation (applied
technology, etc.) influence cultures; however, there
are numerous examples that provoke disagreement
as well. External challenges, burdened by even
more intensive human factors, means values are
challenged on a daily basis. The role of organi-
zational culture influences the everyday life of
service organizations, since it has nothing to rely
27

on, but the human resources. It is even more so in
service organizations, than elsewhere.
The basic values that prevail in all operational
segments work as a guideline even more, since
there is little possibility for technological control.
Therefore culture, as a support or pillar, helps in
finding one’s way in uncertain situations where
control or regulations do not apply. The weakness
of service organizations is a myriad of variable
situations and moments of truth, where a decision
has to be made on the spot in front of the eyes
of the customer in the name of the organization.
In these ever-changing situations shared values
can be the watchtower, which guides organiza-
tional members in making decisions and choosing
suitable behavior.
Cultural shaping emerges as a key device in
the leader’s toolset. The evaluation of work and
expected behavior is placed into a framework of
organizational culture. The shaping of culture
has an emphasis in the leadership set of tools,
through which the expectations of “good work”
are defined. These values help employees a lot
who are forced to stand the challenge of uncertain
Figure 6. The culture based model of service leadership
28
Services and Service Management
decision situations, to adopt an attitude that suits
the expected norms.
As Weick (1987) argues the reduction in the
number of mechanistic organizations means the
corresponding increase of organic organizations.
The increasing role of culture is not due to its
rising significance, but to the rising number of
organic organizations. The important trend away
from mass production to service and information
companies in the economy brings about the change
that considers the control of the organization’s
members through their attitude and commitment
feasible (Alvesson, 1993) (see Figure 6).
Indirect control: A special feature of ser-
vices is that organizational employees have to
work in a much more open system than members
in production companies. Processes of service
organizations, no matter how much regulation is
enforced, will be burdened by unexpected events
and factors due to the human factor (namely the
customer) with a certain degree of unreliability
and unpredictability.
The leadership dilemma here is how to control
items and processes in a system with so many vari-
Services and Service Management
ables? Mistakes are easier to recover in a closed
production system in-house without the client
noticing. In a production procedure, the client
does not have changing demands or at least not
often. Service leaders rather create a framework
of behavior to be applied daily, and within which
leaders and followers feel comfortable.
Psychological contract: Leadership must
strive for an informal agreement with the organi-
zational members so that control will not really be
needed. It requires effective communication and
identification with organizational goals. Psycho-
logical contract serves as a guideline for relying
on the skills and maturity of the members. Only
those employees dare to make decisions in those
unpredictable situations, who are empowered
and authorized to do so. They need to know that
making mistakes is a natural part of organizational
culture and doesn’t result in instant punishment2.
This kind of empowerment based on trust exists not
only in organizations with front line employees,
but in courts as well, which work by very dif-
ferent cultural guidelines. Henderickson (1997)
observed a team-based operation, where the
members of the team decide their own schedules,
delegation of tasks, substitutions, and training and
resource requirements.
Trust: The basis of collaboration can only
be a trusted relationship, which is a large long-
term investment for the leader. Leaders’ behavior
should follow the espoused values constantly for
achieving leadership credibility. Then (s)he can
expect employees to make decisions in unexpected
and risky situations. Kouzes and Posner (1995)
carried out a survey in which they examined
managerial skills; honesty, foresight, capability
of inspiration, and expertise. All these are called
managerial credibility, which serves as a basis
for trust (Kouzes & Posner, 1995). A tediously
built-up credibility can be ruined very fast; both
because of internal and external causes. Based
on a survey in the hotel industry, Simons (2002)
revealed the following causes:
• Sticking Labels. A tag of liar can be ac-
quired by one event, while honesty has to
be proved over time.
• Competing Stakeholders. A leader has to
comply with a variety of requirements and
interests, which may bring about conflicts
with his or her own employees.
• Shifting Policies. The consecutive chang-
es of the organization particularly endan-
ger the integrity of the leader’s behavior.
• Changing Fashions. The executives also
feel forced to adopt new methods to prove
that they are up to date even if they do not
necessarily fit the organizational values,
thereby jeopardizing the possibility of con-
sistent leadership and employee behavior.
• Confusion about Priorities. Sometimes
even the leaders themselves cannot see the
priorities of the organization clearly. This
uncertainty may lead to adopting fashion-
able solutions in order to strengthen them-
selves, however the behavioral integrity is
harmed in such a case.
• Blind spots. It is the leader himself who
endangers his own credibility far more
than the previously listed causes. The
natural requirement that the leader sees
himself as consistent, leads to the dishar-
mony of espoused values and values in
use. Therefore leaders became surrounded
by admirers, who are selected on the basis
of only giving positive feedback to their
manager from time to time “Nobody likes
taking part in the destruction of his or her
own private myth.”(Dunai, 2005)
Holographic view: It is even truer for service
organizations, where the most preferred leader-
ship style can be experienced at every level of the
organization. This becomes extremely important
at the lowest level of the hierarchy, where the em-
ployees meet the customers. There is no member
of an organization who can pretend to be very
29

customer-friendly, when (s)he is not treated like
an internal customer.
Accepting Morgan’s (1986) thoughts, we can
state that service companies, instead of a mechanic
operation, have a mind-like, information absorb-
ing and processing operation, which is the basis
of two-loop learning. Service organizations often
cannot afford to have a mighty hierarchy and
regulations, but instead, the values, which prevail
even in the uncertain situations, should dominate
decisions and behaviors at all levels. Leadership
responsibility is unquestionable here too.
Harmony of the espoused-values and values-
in-use: This refers to the challenges of maintaining
the harmony between the cultural levels. Shared
values must be transparent and commonly known
and accepted. Espoused values are only worth as
much as they can be seen and felt in everyday
practice (i.e. values-in-use). As soon as these two
levels become separated, frustration will grow
in the organization, then the harmony between
individual values and attitudes becomes separated,
which has a negative impact on the customer rela-
tions. Shared values can construct a framework,
which places service quality above all, serving
as a watchtower in uncertain situations. This
provides some indirect control after all. When a
delicate situation arises, employees do not require
regulations, but have to make decisions by those
guidelines determining the shared values of the
organization. These values can be the controlling
tool, which ensures consistency in the services for
all the leaders. The same has to be obvious for
the client. A separation on the level of values and
attitude will be obvious for the customer leading
to quality problems.
These values appear as attitudes on the level
of behavior and activity. It can be altered by
training and be guided in the right direction.
The responsibility of the leader is enormous if
he wants to earn credibility since when one can
feel the distortion of values, or their becoming
superficial, incredulity and disbelief will set in.
The espoused values and expected attitude are
30
Services and Service Management
worth as much as the members of the organiza-
tion feel that they are. A leader may show a good
example with his behavior.
CONCLUSION
We examined a plethora of definitions of services
and considered the different emphases of various
definitions.
Services are intangible products, most of them
are experienced through social interactions. Ser-
vice companies often try to develop a corporate
culture which is based on frequent interactions with
customers. As a consequence, however, it is the
“Moment of Truth” experiences which multiply
and the employees in the front office should be
able to handle conflicts and challenges that occur
during the process of providing a service.
In relation to how we can manage the services
aspects of service management were examined in
contrast to the management of production com-
panies and we reflected on the different strategies
of services.
In service management it is essential to know
the business rationale. It centers on the debate
concerning standardization or customization. The
classification of Sundbo (2002) was considered
in this context.
As service is an intangible product, one of the
main factors that provides competitive advantage
of the service company is human capital. Thus,
we examined the internal marketing concept, and
a new value-based approach: the Culture-Based
Leadership Model of Services.
The aim of this chapter is for reader to learn
and understand a complex approach to services
and service management. It is very important to
understand the evolution of service and the differ-
ent emphases that have influenced the thinking of
managers, especially in relation to the significant
differences between the management of a produc-
tion company and service company.
Services and Service Management
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KEY TERMS AND DEFINITIONS
Augmented Product: The core product (a
good or a service) plus all supplementary elements
that add value for customers.
Customization: Tailoring service character-
istics to meet each customer’s specific needs and
preferences.
Holographic View: Any department or unit of
an organization reflects the culture and leadership
style of the overall organization.
Indirect Control: A special feature of services
is that organizational employees have to work in
a much more opened system, than members in
production companies.
Inputs: All resources (labor, materials, energy,
and capital) required to create service offerings
Intangibility: A distinctive characteristic of
services that makes it impossible to touch or hold
on to them in the same manner as physical goods.
Intangible: Something that is experienced and
cannot be touched or preserved.
Internal Communications: All forms of
communication from management to employees
in a service organization.
Internal Customers: Employees who re-
ceive services from an internal supplier (another
employee or department) as a necessary input to
performing their own jobs.
Internal Services: Service elements within
any type of business that facilitate creation of, or
add value to its final output.
Mass Customization: Offering a service with
some individualized product elements to a large
number of customers at a relatively low price.
Product: The core output (either a service or
a manufactured good) produced by a firm.
Product Attributes: All features (both tan-
gible and intangible) of a good or service that can
be evaluated by customers.
Product Elements: All components of the ser-
vice performance that create value for customers.
Psychological Contract: An unwritten agree-
ment, which serves as a guideline for mutual trust
between management and employees in the level
of skills and motivation of the members.
Service: An act or performance that creates
benefits for customers by bringing about a desired
change in—or on behalf of—the recipient.
35

Service Marketing System: That part of the
total service system where the firm has any form
of contact with its customers from advertising to
billing; it includes contacts made at the point of
delivery.
Service Operations System: That part of the
total service system where inputs are processed
and the elements of the service product are created.
Service Quality: Customers’ long-term,
cognitive evaluations of a firms service delivery.
Situational Management: Situation based
management (or leadership) arises if you see it as
a problem that we can’t define one universal style
to apply in all situations. It focuses on the fit of
leadership style and follower maturity.
Standardization: Reducing variation in ser-
vice operations and delivery.
36
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Services and Service Management
Tangible: Capable of being touched, held, or
preserved in physical form over time.
Variability: A lack of consistency in inputs
and outputs during the service production process.
ENDNOTES
1
Normann, R. (1978). Utvecklingsstrategier
for svenskt servicekunnande. Stockholm,
Sweden: SIAR.
2
It may happen the contract becomes a prin-
ciple (See Nordstrom-rule: 1.Use your own
sensible judgment in all situations; 2. No
more rules…”Hawn, 1997).