ch01 services in the economy
DESCRIPTION
operation and service managementTRANSCRIPT
Chapter 1
Why Study Service Operations?• Service firms are a large percentage of the
economies of industrialized nations and it’s growing– 80% of the US economy (employment and GDP)
• There is little focus on services in the academic world. Gain a competitive edge.
• Not all management tools that are appropriate for manufacturing are transferable into a service environment
1
The Importance of Service SectorHistorically service is defined by what it is
not:Services are not
Goods Producing Manufacturing & Construction Extraction Agriculture, forestry, fishing & mining
Services Retailing, Wholesaling, Transportation, Financial services, etc.
Nowadays service is ubiquitous.
Role of Services in an Economy
Service Definitions A Service is a Time-perishable, Intangible
Experience Performed for a Customer Acting in the Role of a Co-producer.
- James Fitzsimmons
Services are deeds, processes, and performances.
- Valarie Zeithaml & Mary Jo Bitner
Definition of Service Firms Service Enterprises are Organizations that
Facilitate the Production and Distribution of Goods, Support Other Firms in Meeting Their Goals, and Add Value to Our Personal Lives.
- James Fitzsimmons
Bell’s Stages of Economic DevelopmentPreindustrialIndustrialPostindustrial
Features
Society Game Pre-dominant Activity
Use of Human Labor
Unit of Social Life
Standard of Living Measure
Structure Technology
Pre-Industrial
Against Nature
Agriculture, Mining
Raw Muscle Power
Extended Household
Subsistence
Routine, Traditional, Authoritative
Simple hand tools
Industrial Against fabricated nature
Goods, Production
Machine tending
Individual Quantity of Goods
Bureaucratic,Hierarchical
Machines
Post-Industrial
Among Persons
Services Artistic, Creative, Intellectual
Community
Quality of life in terms of health, education, recreation
Interdependent, Global
Information
2
Historical US Employment by Economic Sector
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1800 1850 1900 1950 2001
Year
Perc
ent
of W
ork
forc
e
Extraction
Goods Producing
Service Producing
Growth of Services
Percent Service Employment for Selected Industrialized Nations
Country 1965 1975 1985 1995 2005
United States 59.5 66.4 70.0 74.1 78.6
United Kingdom 51.3 58.3 64.1 71.4 77.0
The Netherlands 52.5 60.9 68.3 73.4 76.5
Sweden 46.5 57.7 66.1 71.5 76.3
Canada 57.8 65.8 70.6 74.8 76.0
Australia 54.6 61.5 68.4 73.1 75.8
France 43.9 51.9 61.4 70.0 74.8
Japan 44.8 52.0 57.0 61.4 68.6
Germany 41.8 n/a 51.6 60.8 68.5
Italy 36.5 44.0 55.3 62.2 65.5
Product Services
Physical
Information
6%
10%
31%
53%
37%
63%
84%16%
D
BA
C
a. PreindustrialIn U.S , during year 1800Employment in extraction field Agriculture is the most prominent. More than
80% workforce in Agriculture sectorService occupations mostly were domestic
servants and sailorsFamily relationships and tradition important
but education and innovation are notQuality of life dependent on nature
b. IndustrialYear 1900 to 1950Important activity Goods productionQuality of Life Measured by accumulation of
goods. “He who dies with the most toys, wins”Focus was on maximizing the productivity of labor
and machinesExtreme division of laborDehumanizing jobs hence labor unions were
formed“Manual workers” outnumbered “white collar
workers”
c. PostindustrialYear 1950 onwardsService producing industries increased from 50%
to 80% in USHealth, Education, & recreation predominates
and it determines Quality of LifeA small subset of the service economy called
“experiences” will be a dominant economic forceInformation rather than muscle was the focus;
workers value based on judgment, creativity & theoretical reasoning
New paradigms are required to manage service industries.
New Experience EconomyService undergoing transformation from the
traditional concept of a service transaction to one of an experience.
Eg: Disney World, Starbucks, etc.Economy Agrarian Industrial Service Experience
Function Extract Make Deliver Stage
Nature Exchangeable
Tangible Intangible Memorable
Attribute Natural Standardized
Customized Personal
Method of Supply
Stored in Bulk
Inventoried Delivered on demand
Revealed over time
Seller Trader Manufacturer
Provider Stager
Buyer Market User Client Guest
The four realms of experience
Customer Participation
Passive Active
Environmental Relationship
Absorption Entertainment (Movie)
Education (Language)
ImmersionEstheticism
(Tourist)Escapism
(Scuba diving)
Reasons for transformation from industrial to post industrial eraNatural development of services such as
transportation & Utilities to support industrial development
Population growth & mass consumption of goods increase wholesale & retail trade along with banking, real estate, & insurance
Higher income means higher demand for durables & services, proportion spent on food & home decreases. (Similar to Maslow’s Hierarchy)
3
What is Operations?The transformation process that turns
inputs into outputs, that is, the act of combining people, raw materials, technology, etc. into useable services and products
Who is in the operations function?The people who actually make a product or
perform a serviceTypically operations has the largest number
of employees of any functional area
Importance of studying “operations” in services
4
But I’m going into marketing, finance, strategy…
Regardless of your functional area, you will be involved in “transformational processes”, in other words, “getting things done”
Service operations can help you get things done more effectively and more efficiently.
Opportunities in Service SectorVast & untapped opportunities to improve
service businesses.Only manufacturing is being considered for a
time being.Imbalance exists which creates a huge
opportunity
5
Characteristics of services …Rules:
Services are intangible
Simultaneous production and consumption
Proximity to the customer
Services cannot be inventoried
Exceptions:Facilitating goods: playbills,
groceriesComputer system upgrades;
janitorial services; live music
Internet-based services; catalogs
Retailers hold inventory; hotel rooms, airline seats are inventory
Modern Products
Operations in the Service SectorMany products: Combination of Goods and ServicesServices
Repair and MaintenanceGovernmentFood and LodgingTransportationInsuranceTradeFinancialReal EstateEducationLegalMedicalEntertainment and Other professional Occupations
Classification frameworksClassification helps in finding commonalities Similarities helps in finding insightsWell known classifications
Customer Contact ModelService Process Matrix (Proposed by
Schmenner)
6
Customer Contact ModelServices are classified according to the
amount of customer contactPure Services Mixed Services Quasi-Mfg. Manufacturing
MedicalRestaurantsTransportation
Branch offices Home officesDistribution centers
•Guiding Principle:
timeCreationService
TimeContactCustomerfEfficiencyPotential
__
__1_
High Contact Low Contact
7
Service Process Matrix
Professional Service•Doctors•Lawyers•Accountants•Architects
Mass Service•Retailing•Wholesaling•Schools•Retail Aspects of Commercial Banking
High
Service Shop•Hospitals•Auto Repair•Other Repair Services
Service Factory•Airlines•Trucking•Hotels
Low
HighLow
Degree of Labor Intensity
Degree of Interaction and Customization
8
Low Labor IntensityChallenges for managers
Capital decisions Technological advances Managing peak/non-peak demand Scheduling service delivery
High Labor Intensity Challenges for managers
Hiring, training Methods development Employee welfare Scheduling workforces Control of far-flung locations Managing growth
Low Interaction/CustomizationChallenges for managers
Marketing Making service “warm” Attention to physical
surroundings Managing fairly rigid hierarchy
with need for standard operating procedures
High Interaction/CustomizationChallenges for managers
Fighting cost increases Maintaining quality Reacting to consumer
intervention in process Managing flat hierarchy with
loose subordinate-superior relationships
Gaining employee loyalty