TOPIC1 - SERVICES

MGT605 -
MANAGEMENT OF
SERVICE OPERATION

MGT605 :Services in the Economy

 Service in the Economy:
2

 Understand how and why services dominate the

U.S. economy.
 Define “Service Operations”.
 Delineate the differences between goods and
services.
 Categorize services according to the "customer
contact model" and the "service process matrix"
and understand the managerial ramifications of
those conceptual models.
MGT605 :Services in the Economy
 A service package
3

 A service package is a bundle of explicit and

implicit benefits performed with a supporting
facility and using facilitated goods.

 When you eat at a fast food restaurant (supporting

facility), you may purchase a hamburger
(facilitating good) that someone else cooked for
you (service).

MGT605 :Services in the Economy

 Service Concept
4

 The service concept is the perception and

expectations of the service itself in the minds of the
customers, employers, shareholders, and lenders.

 The service system is the equipment, layout, and

procedures used to provide the service and maintain
quality and delivery standards.

MGT605 :Services in the Economy

 Define Services Operation
5

 A service operation is an open transformation process of

converting inputs (consumers) to desired outputs (satisfied
consumers) through the appropriate application of resources
(family, material, labor, information, and the consumer as well).

 Services Operation
Services are economic activities that:
• produce time,

• place,

• form, or
• psychological utility

MGT605 :Services in the Economy

 Services Operation
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 A meal in a fast food restaurant saves time.

 A meal with a date in an elegant restaurant with
superior service provides a psychological boost.

MGT605 :Services in the Economy

 Fiji Economy
7

 The Fiji. economy consists of sectors producing

goods and services.
 The goods-producing sector consists of
manufacturing, construction, and extractive industries
such as agriculture, mining, forestry, and fishing.
 Different types of services
 business services such as consulting, banking and
financial services;
 trade services such as retailing, maintenance and
repair;
MGT605 :Services in the Economy
 Different types of services
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 social/personal services such as restaurants and

healthcare;
 public services such as government and education;
and
 infrastructure services such as transportation and
communication.

MGT605 :Services in the Economy

 CHARACTERISTICS OF SERVICES

 Services are generally performed with an open-

systems perspective, that is, the system is not
closed or isolated from the consumer as it is in
manufacturing.

MGT605 :Services in the Economy

 Customer contact
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 The consumer is said to be within the service's

"factory."
 There is a high degree of customer contact
throughout the service process, with the customer
frequently participating in the process itself.

MGT605 :Services in the Economy

 Customer participation
11

 Customer participation within the process means

that there is simultaneous production and
consumption; thus,
 the service cannot be stored for later use, possibly
as a buffer to absorb fluctuations in demand.

MGT605 :Services in the Economy

 Services Attributes
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 Although services can have tangible (high goods

content) and
 intangible (low goods content) attributes,
 services are generally regarded as intangible,
that is, you can't see, feel, or test a service's
performance before purchasing it.

MGT605 :Services in the Economy

 Problem with Intangibility
13

 Since services are intangible, it makes sense that

they can't be patented.
 The intangibility of services sometimes makes it
difficult for the service firm to identify their
product. Is the product at a restaurant the food
itself, the service, or the atmosphere?

MGT605 :Services in the Economy

 Problem with Intangibility
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 the difficulty in measuring output.

 Service output tends to be variable and
nonstandard, making quality control and
productivity measurement a problem.

MGT605 :Services in the Economy

 Time perishable
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 Services are time perishable.

 An empty seat on an airline means that that seat on
that flight will never be available again.
 The same holds true for an empty hotel room. The
empty room will never again be available on that
particular night.

MGT605 :Services in the Economy

 Time perishable
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 The usefulness of service capacity is time-

dependent—another reason that services cannot be
inventoried and held for a later date.
 This means that services cannot be transferred or
resold but must be sold directly to the customer.
 It also means that services cannot be mass
produced.

MGT605 :Services in the Economy

 Labor intensity
17

 Labor intensity is another characteristic of services.

 In fact, labor is usually the most important
determinant of service organization effectiveness

 Barriers to entry
 Services can also have very weak barriers to entry.
 Though not true for all services, many require little
in the way of capital investment, proprietary
technology, or multiple locations.
MGT605 :Services in the Economy
 Location
18

 Site selection for services is usually dictated by the

location of consumers.
 Preferably, services will utilize decentralized facilities
within close proximity to customers.

 CLASSIFYING SERVICE FIRMS

 Equipment-based services
 People-based services.


MGT605 :Services in the Economy

 Equipment-based services
19

 automatic services such vending machines and

automated car washes;
 services monitored by unskilled labor, such as dry
cleaning and movie theaters; and
 services operated by skilled labor, such as
excavating, airlines, and computer services.

MGT605 :Services in the Economy

 People-based services
20

 utilizing unskilled labor, such as lawn care, security

guards,
 janitorial service; those utilizing skilled labor, such
as appliance repair, plumbing, catering, electrical
work, and auto body repair;
 and professional services such as law, medicine,
accounting, and consulting.

MGT605 :Services in the Economy

 Wheelwright and Hayes's product-process
matrix
21

This framework groups firms based on their position

on the:
1. product life cycle
2. product structure and their stage within the
process life cycle and
3. process structure, yielding the classifications of
project, job shop, batch, repetitive-assembly, and
continuous-flow manufacturing.

MGT605 :Services in the Economy

 Projects
22

 Projects include professional services in which the

process is characterized by a number of
interrelated, well-defined activities, accomplished
in a sequence. Doctors, lawyers, and architects
typically manage a number of projects.

MGT605 :Services in the Economy

 Job shops
23

 Job shops and batches define services that are

tailored to the customers' specifications.
 Repetitive assembly has a line flow, as do services
that can be standardized and divided into routine
tasks such as university registration, license
renewal, and military medical examinations

MGT605 :Services in the Economy

 High-contact services
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 High-contact services must have their operations

near the customer and must be able to interact well
with the public, since quality is often subjective (in
the eye of the beholder).
 Output is variable, so wages have to be time-based.

MGT605 :Services in the Economy

 Low-contact services
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 Low-contact services can place their operations near their

suppliers, labor, or transportation, since the customer is not
in the environment.
 The workforce is required to have only technical skills, as
work would be performed on a customer surrogate
 . This also allows wages to be output-based.

MGT605 :Services in the Economy

 Low interaction/customization
26

 Service firms with low interaction/customization

utilize standard operating procedures and pay less
attention to physical surroundings.

MGT605 :Services in the Economy

 High interaction/customization
27

 Strive to maintain quality, react to customer

intervention and gain employee loyalty.

MGT605 :Services in the Economy

 Low labor-intensive firms
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 . Low labor-intensive firms concentrate on capital

decisions, technological advances, maintaining a
high utilization rate, and scheduling service
delivery.

MGT605 :Services in the Economy

 Highly labor-intensive
29

 Highly labor-intensive services emphasize

workload scheduling, managing growth, hiring,
training, and employee welfare

MGT605 :Services in the Economy

 Service Process Matrix.
30

 Horizontal dimension
 Vertical dimension

MGT605 :Services in the Economy

 Service Process Matrix
31

Degree of Interaction and Customization

Low High
Service Factory Service Shop
•Airlines •Hospitals
Low •Trucking •Auto Repair

•Hotels •Other Repair Services

Degree
of Labor Mass Service Professional Service
Intensity •Retailing •Doctors

•Wholesaling •Lawyers

High •Schools •Accountants

•Retail
Aspects of •Architects
Commercial Banking

7
MGT605 :Services in the Economy
 Service Process Matrix- Challenge for Managers
32

MGT605 :Services in the Economy

 Horizontal dimension

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 The horizontal dimension is the degree of labor intensity, which is defined as the ratio of
labor cost to capital cost
 Vertical dimension
 The vertical dimension of the matrix measures the degree of customer interaction and
customization.
 Professional services
 Firms that have a high degree of labor intensity and a high degree of
interaction/customization
 Mass services
 Service firms with a high degree of labor intensity but a low degree of
interaction/customization

MGT605 :Services in the Economy

 Service shop,
34
 Low labor intensity and a high degree of
interaction/customization

 Service factory.
 Firms with both low labor intensity and a low
degree of interaction/customization

 Service factory.
 Firms with both low labor intensity and a low
degree of interaction/customization
MGT605 :Services in the Economy