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1. Technische Universität München
Fakultät für Informatik
Lehrstuhl für Wirtschaftsinformatik (I 17)
Prof. Dr. Helmut Krcmar
Bachelorarbeit
in Wirtschaftsinformatik
Automation of Services
A Literature Review
Daniel Adugna Muluneh
Aufgabensteller: Prof. Dr. Helmut Krcmar
Betreuer: Dipl.-Inf. (Univ.) Sebastian Esch
Abgabedatum: 14.01.2010

2. Ich versichere, dass ich diese Bachelorarbeit selbständig
verfasst und nur die angegebenen Quellen und Hilfsmittel
verwendet habe.
14.01.2010

3. I
Abstract
Automation and services are two of the most influential factors shaping many aspects of our
daily lives. Automation has made it possible to replace tedious and repetitive human labour
through machines resulting in standardisation of products, increase in output quantity,
improvement in product quality, higher safety at work places and many more. Services on the
other hand are the back bone of the economies of most countries making up more than 70
percent of GDP in some technologically advanced countries including Germany. Unlike
manufactured goods though, human beings play the central role in both producing and
consuming services. This makes the intellectual human workforce to a very scarce resource.
Consider for instance a doctor who can only provide his services to a limited number of
patients in a day. In full contrast to a machine though, to meet a higher demand, one can
neither duplicate the doctor, nor delegate his services to another doctor or a later time without
difficulties – if not impossible at all. Optimising service processes and increasing efficiency
could be one of the only options in meeting higher demand whilst providing quality services.
This thesis looks at how the gains made in automating manufacturing processes and
workflows could be transferred to those of services. The main goal in doing so is to reap the
benefits from automating services, namely increased efficiency and higher quality, similar to
those made in the manufacturing. For services, higher quality could be interpreted as shorter
waiting time, quick response time and the like.
In doing so, this thesis looks at three research questions by conducting a literature analysis.
Research question 1: What are the challenges encountered in automating services? In
this account, this section looks at what automation means, and the roles it plays in
today’s socio-economic aspects. It then derives the steps needed for automating
manufacturing processes and looks at the challenges that could be encountered in
trying to automate service processes. These challenges arise from the unique nature of
services such as: perishability, intangibility, heterogeneity, simultaneity, and customer
involvement in the process of service creation.
Research question 2: Which approaches and methodologies are there for designing
and creating services? This section looks at the precise methodologies to classify and
design services and their process.
Research question 3: Which automation aspects are addressed by the considered
methodologies for creating services? This question looks at the extent to which
services could be automated and identifies the criteria to automate certain elements in
the process.

4. II
Table of Contents
ABSTRACT................................................................................................................................I
TABLE OF TABLES............................................................................................................... III
TABLE OF FIGURES ............................................................................................................. III
1 INTRODUCTION................................................................................................................ 1
1.1 BACKGROUND ................................................................................................................. 1
1.2 ISSUE............................................................................................................................... 1
1.3 METHODOLOGY............................................................................................................... 2
2 AUTOMATION................................................................................................................... 4
2.1 HISTORY AND DEVELOPMENT ......................................................................................... 4
2.2 ICT – THE NEW DRIVING FORCE BEHIND AUTOMATION................................................. 6
2.3 TYPES OF AUTOMATION .................................................................................................. 7
2.4 THE AUTOMATION PROCESS ........................................................................................... 8
2.5 AUTOMATION AND ITS IMPACTS: SOCIAL ASPECTS ....................................................... 12
2.6 AUTOMATION AND ITS IMPACTS: ECONOMIC ASPECTS.................................................. 13
2.7 AUTOMATION AND ITS IMPACTS: ORGANISATIONAL ASPECTS ...................................... 14
2.8 AUTOMATE OR NOT TO AUTOMATE?............................................................................. 16
2.9 THE LIMITS OF AUTOMATION......................................................................................... 17
2.10 CHALLENGES AUTOMATING SERVICES ...................................................................... 18
2.11 CONCLUSION.............................................................................................................. 20
3 SERVICES......................................................................................................................... 22
3.1 THE NATURE OF SERVICES............................................................................................ 23
3.2 TYPES OF SERVICES....................................................................................................... 26
3.3 PROCESS OF THE SERVICE DEVELOPMENT..................................................................... 29
3.4 SERVICE ENGINEERING ................................................................................................. 33
3.5 SERVICE BLUEPRINTING................................................................................................ 38
3.6 SERVICE QUALITY MANAGEMENT ................................................................................ 40
3.7 CONCLUSION................................................................................................................. 42
4 SERVICE AUTOMATION............................................................................................... 44
4.1 AUTOMATION AND SERVICE DEVELOPMENT – HOW DO SERVICES CONSIDER
AUTOMATION?....................................................................................................................... 44
4.2 ADVANTAGES OF AUTOMATION FROM A SERVICE PERSPECTIVE................................... 47
4.3 NEW CLASSIFICATION OF SERVICES FOR AUTOMATION ................................................ 48
4.4 DECIDING ON AUTOMATING.......................................................................................... 50
4.5 CONCLUSION................................................................................................................. 54
5 CONCLUSION.................................................................................................................. 56
6 REFERENCES................................................................................................................... 59
7 APPENDIX........................................................................................................................ 64

5. III
7.1 RESULT OF CONDUCTED LITERATURE REVIEW ............................................................. 64
7.2 IT SERVICE DEVELOPMENT METHODOLOGIES PROPOSED BY ADAMOPOULOS, PAVLOU, &
PAPANDREOU ......................................................................................................................... 79
Table of Tables
Table 1: Major events in the history of automation (Source: own illustration) ......................... 6
Table 2: Available technologies to automate systems (Source: based on Boyer (1999) and
Sheer (1991))........................................................................................................................ 9
Table 3: Regional Comparison of Standards of Living (Source: own illustration) ................. 12
Table 4: Contrasts in economic activities (Source: own illustration) ...................................... 14
Table 5: Challenges automating services (Source: own illustration)...................................... 20
Table 6: Nature of the service process (Source: Lovelock (1992)).......................................... 25
Table 7: Classifying of services with regard to relationships with customers (Source:
Lovelock (1983, S. 13))...................................................................................................... 28
Table 8: Classifying of services with regard to customization and judgment in service delivery
(Source Lovelock (1983, S. 15))........................................................................................ 28
Table 9: Classifying of services with regard to the nature of demand for a service relative to
supply (Source: Lovelock (1983, S. 17)) ........................................................................... 29
Table 10: Number of publications considering service automation (Source: own illustration)
............................................................................................................................................ 45
Table 11: Decision on automation (Source: own illustration) ................................................. 54
Table 12: Summary of search returns (Source: own illustration) ............................................ 65
Table 13: Result of the literature review (Source: own illustration)........................................ 78
Table 14: List of primary book references (Source: own illustration)..................................... 79
Table of Figures
Figure 1: Growth in available information versus available analytical personnel (Source:
Melik (2002) citing (Gartner, 1998)) ................................................................................... 2
Figure 2: Carnot Process Circle (Source: Patton & Patton (2009)............................................. 8
Figure 3: Organisation and its sub systems (Source: own illustration)...................................... 9
Figure 4: The manufacturing process (Source: own illustration)............................................. 10
Figure 5: Increasing complexity with increasing abstraction (Source: own illustration) ....... 18
Figure 6: Role of Services in an Economy (Source: Guile & Quinn (1988)) .......................... 23
Figure 7: Dimensions of a Service (Source: Bullinger and Scheer (2006, S. 24))................... 24
Figure 8: Types of Services (Source: Meffert & Bruhn (2009, S. 28)).................................... 27
Figure 9: Value Chain of a Continuous Service (Source: Modified from Bruhn and Stauss
(2007, S. 59))...................................................................................................................... 31
Figure 10: Components in the Service Development (Source: Bitran & Pedrosa (1998, S.
173)) ................................................................................................................................... 32

6. IV
Figure 11: Basic service model (Source: Bullinger et al. (2003))............................................ 34
Figure 12: A waterfall model for developing services (Source: Bullinger et al. (2003, S. 7)) 36
Figure 13: Spiral Model for service development (Source: Shostack & Kingman-Brundage
(1991))................................................................................................................................ 37
Figure 14: Service blueprint elements (Source: Modified from Shostack ( 1984) and Stanton
et al (2004)) ........................................................................................................................ 38
Figure 15: Blueprint for a Hotel (Source: (Fitzsimmons & Fitzsimmons, 2006))................... 40
Figure 16: Service Quality Gap Model (Source: Fitzsimmons and Fitzsimmons (2006, S.
131)) ................................................................................................................................... 41
Figure 17: Customer contact in relation to technology (Source: Modified from Froehle and
Roth (2004))....................................................................................................................... 44
Figure 18: Contrasting service attributes (a) (Source: own illustration).................................. 48
Figure 19: Contrasting service attributes (b) (Source: own illustration).................................. 49
Figure 20: Levels of automation for independent functions (Source: Parasuraman et al (2000))
............................................................................................................................................ 50
Figure 21: Service development methodology (Adamopoulos, Pavlou, & Papandreou, 2002)
............................................................................................................................................ 80

7. 1
1. Introduction
This section discusses the background and issues which led to the writing of this thesis and
describe the methodologies and approaches taken in addressing the research questions.
1.1 Background
We live today in an automated and service oriented society. This could be observed in the
daily activities we perform, the way our economy is composed and all the devices and
appliances we use in our everyday lives. The role of automation in shaping the current
societies is undeniable. The resettlement of people from rural countryside to manufacturing in
cities and later to the service sector worldwide was only made possible by replacing human
work force through machines. At the early stage of automation, the most crucial gain is
probably the drastic increase in output both in the agriculture sector and manufacturing;
without which it wouldn’t have been possible to feed and meet the demands of all people in
the world today(Ramtin, 1991). On the later stage, automation was more concerned with
increasing efficiency, improving quality and effective resources utilisation (Groover, 1987). A
modern manufacturer no longer produces all his products in house at one location rather; the
production and supply chain is spread over different geographical regions and among many
manufacturers (Reichwald & Piller, 2009). This trend is further facilitated through
information and communication technologies which is also a descendant from automation.
The manufacturing sector is in fact a deeply-studied and highly mechanised field (Groover,
1987). There are many tools and technologies available for optimising manufacturing
processes and designing new products such as reference models, supply chain management
systems, enterprise resource planning, computer integrated manufacturing and many others.
At research level, most manufacturing firms have a research and development (R&D)
departments and also most of the engineering fields of study are linked somehow to
manufacturing. This is in very sharp contrast to services. Despite the fact that services play a
crucial role in the economy and employ up to 40% of the world population (up to 85% in
some advanced economies) (see
Table 3), this field has not been researched and established as did the manufacturing sector; in
fact there is no one single field such as “service engineering” that covers services as an
independent discipline (Stauss, Engelmann, Kremer, & Luhn, 2007). The main reason for this
is probably the unique properties that services possess. Unlike manufactured goods, one
cannot store, touch or see services. In fact services are produced and consumed at the same
time (Bruhn & Stauss, 2007). This aspect would require that the service provider and
customer be physically or intellectually present at the same place and time. Another unique
aspect of services is their immense heterogeneity; in fact no two services are the same
(Meffert & Bruhn, 2009). Consider for instance a waiter waiting two different tables. Despite
the setting and menu being the same the experience received at the two tables is not the same.
This is mainly due to the large human factor involved in creating and consuming services.

8. 2
1.2 Issue
The unique attributes of services makes it not possible to act upon them in the same manner
as with physical goods; for instance storing or outsourcing services. In a hotel for example,
rooms that remain unoccupied are wasted potentials. On the other hand thought, once all of
the rooms are occupied further customers are turned away. At the same time services that are
dependent on human know how, like for instance a doctor or a lawyer, reach their limits when
the working day is over. In his book Melik (2002) explains that due to the exponential growth
of business data and information by at the same time constant or even slightly falling number
of available analytical personnel, the number of critical decisions that are being made per
employee and week has increased (see Figure 1).
To meet a growing demand for services, there are three factors to consider from the service
provider’s perspective: number of employees, number of working hours, and the service
process itself. The downside with increasing the number of employees is that there would be
plenty of idle personnel once the peak hour is over costing the organisation heavily. In
addition, it is not always possible to replace qualified employees that easily. Similarly the
number of working hours in a day cannot be increased without a limit. This leaves the service
process the only area that could be manipulated. Automation has made it possible in the
manufacturing sector to increase production efficiency, output potential and product quality.
This thesis looks at how automation contributes or could contribute to achieve similar gains in
the service sector.
1.3 Methodology
This Bachelor Thesis is based on a literature review. Prior to addressing the research
questions a deep and extensive literature review has been conducted. The result of this review
is to be found under attachments in section 7.1(Result of Conducted Literature Review). This
review was conducted in order to find out the to-date studies made on automation of services.
In accordance, an internet search was conducted using the search engines of the university
Figure 1: Growth in available information versus available analytical personnel
(Source: Melik (2002) citing (Gartner, 1998))

9. 3
library of TU München, Universitätsbibliothek München and Google for the terms:
“services”, “automation”, “service automation”, “Dienstleistungen”, “Automatisierung”.
These terms were selected due to their direct congruence to the title of the bachelor thesis.
This search returned: 1951 literatures for automation, 8697 for services and 2459 for service
automation. The search was further extended to include the terms: “service engineering”,
“process design”, “IT service management”, “Wertschöpfung” and the like.
The reason for selecting these terms is due to the importance of the concept they represent in
the works analysed so far. In total 50279 publications appearing in different journals were
returned.
The journals - in which the publications appeared, were selected in accordance to the
guidelines defined in the WI-Orientierungslisten (WKWI-Sitzung, 2008). Most of the
considered journals are the “A” rated journals by the WKWI. The only “B” rated journals
referred to are, the Harvard Business Review and the IBM Systems Journal. These two
publications were included due to their broader involvement with the topic of service
automation.
Out of the total 50279 papers returned, 67 journal articles, reviews, books and other sorts of
media were pre-selected based on their closeness to the researched topic. These were then
reviewed and used as first hand source of information for this thesis. However, not all
publications were cited. This is due to the fact that some topics were more accurate and up-to-
date and fully or partially covered in other publications.
Research questions (RQ) one and two were answered upon the information gained out of the
conducted literature review. Research question three was addressed by combining the
knowledge derived from the preceding two. In doing so available methodologies to classify
and develop services which were discovered under RQ 2 were re organised in order to gain an
automation suitable perspective of looking at services. The newly classified services were
later discussed on how they could meet the automation criteria.

10. 4
2. Automation
This section looks at what automation means, and the roles it plays in today’s socio-economic
aspects. It also identifies the steps needed for automating manufacturing processes and looks
at the challenges and possibilities for automating service processes.
Delmar S. Harder, a plant manager for General Motors, used the phrase “automatic operation”
for the first time in 1935(Jrank Encyclopedia) to describe production operations which
involved no or little human intervention in their execution. Automatic operation was later
shortened to automation.
Today automation is associated with a technology implementing mechanical, electronic and
computer based systems to operate and control production that overtakes work, normally done
by humans. Thus automation is the capability of causing a machine to carry out a specific
operation on command from an external source (Williams, 2009). Technologies implemented
in the process of automation include: machine tools to process parts, automatic assembly
machines, industrial robots, material handling and storage systems, automatic inspection
systems for quality control, feedback control and computer process control, systems for
planning, data collection and decision support, and additional other tools (Groover, 1987).
Putting it all together, automation comprises four basic elements: a platform, the autonomy, a
process and power source (Nof, 2009). A platform is a machine, a device, a tool, an
installation or a system on which the automation process is carried on. Autonomy describes
what entity, or what predefined set up runs on a platform. This could include: organisation,
process control, automatic control, intelligence and/or collaboration (Nof, 2009). A process,
in the case here, means a set of actions, an operation or function performed by a platform. The
term power source is self explanatory. For instance if we take the grinding of grains by a
windmill, the platform is the windmill itself, the predefined grinding, i.e. the setup of the
grinding shafts, movement of the gears etc. is the autonomy. The process or action performed
by the platform is the grinding of grains, and the source of power is wind energy.
Today automation is the driving force behind future human developments and advancements
in science and innovation (Groover, 1987).
2.1 History and Development
Throughout history, we as human beings have been tirelessly looking for ways to simplify
and at the same time enhance our way of life. Since pre-historic dates, mankind has been
using tools for hunting and building shelters, tools to defend himself from his enemies, and
tools to support his way of life. With time, these tools are replaced with better and more
sophisticated ones to become what we see today in every aspect of our life. In doing so,
automation and mechanisation played a very central role. The efforts of mankind to
automating tasks have been in existence since the time of the ancient Greeks. In about 50
A.D., the Greek inventor Hero, for example, is credited with having developed an automated
system that would open a temple door when a priest lit a fire on the temple altar (Jrank
Encyclopedia). Other ancient examples of mechanisation include: water wells, traps to capture
animals, leverage tools used in construction and for weighing goods by merchants, navigation
tools and compass, weaponry, and many more.

11. 5
The first British patent for a washing machine was issued in 1691. Not much is known about
this machine or the creator. In Germany, Jacob Christian Schäffer published a design for a
washing machine in 1767. In 1782 Henry Sidgier was issued a British patent for a rotating
drum washer (Bobolicu, 2008).
The real boost for the development of automation came, however, during the industrial
revolution of the early eighteenth century. Many of the steam-powered devices built by James
Watt, Richard Trevithick, Richard Arkwright, Thomas Savery, Thomas Newcomen, and their
contemporaries were simple examples of machines capable of taking over the work of
humans (Jrank Encyclopedia).
In 1911, Frederick Taylor proposed the concept of scientific management also known as
Taylorism (Picot, Reichwald, & Wigand, 2008). Taylorism is based on strict division of
labour, specialisation of employees in their respective fields, separation of management from
production, introduction of classic management tools like planning and controlling, piece rate
wage to motivate workers etc. As result companies were able to increase production and meet
the ever rising demand. Today there are still firms in the manufacturing sector with strict
departmentalisation and hierarchical form of management.
During the Second World War military production was increased and resources including raw
materials (iron ore) and energy (crude oil) became scarce (Harrison, 1998). As part of an
attempt to solve this problem, manufacturers started to look into the way how the then
inefficient and energy wasting production facilities were operating. This led to a new trend of
process automation in the 1950’s which was concerned mainly with optimising the
manufacturing process itself by introducing new concepts like just in time (JIT) and robotics
to make production more efficient(Groover, 1987; Picot, Reichwald, & Wigand, 2008).
Since the 1960s, the nature of automation has undergone dramatic changes as a result of the
availability of computers. Until then operations were limited by the human cognitive and
analytical ability to manage large systems (Patton & Patton, 2009) and thus the alternatives
were very limited. As computers overtook the control over automated machines, however, the
number of sensory inputs analysed by system was drastically increased (Groover, 1987). The
availability of information and communications technologies (ICT) beginning from the
1980’s led information to become a key production factor instead of being a scarce resource
(Krcmar, 2005).
Today trends like globalisation and individualisation, assisted by the achievements of
automation are setting a new trend of service orientation (Bruhn & Stauss, 2007); and yet new
challenges for automation. Table 1 summarises the major events in the course of automation
history.

12. 6
Timeline Event Major effects
1770’s Industrial revolution People started moving form the countryside to
the cities and start working in factories and not
on the fields anymore
1920’s Scientific
management
The manufacturing industry started embracing
manufacturing and organisation tools in order to
increase production output
1950’s Process automation The whole production loop was now identified
as a process which could be further optimised in
order to increase effectiveness and efficiency
1960’s Computerisation Large scale automation was made possible.
Processes were integrated and many manual
operation were now undertaken by computers
which not only resulted in increase in production
but also in quality of products
1980’s ICT Information and communication technologies
made it possible for organisations to link
different departments accelerating the flow of
information within the organisation and its
environment paving the way to new concepts
like globalisation, outsourcing and e-business
Present Service orientation This is a developing concept of service
integration, customer orientation and a move
towards ICT enabled flexible and service and
process oriented organisations (Melik, 2002)
Table 1: Major events in the history of automation (Source: own illustration)
2.2 ICT – The New Driving Force behind Automation
Mechanisation and automation are terms which are often used interchangeably. This is not
necessarily baseless, hence mechanisation pre dates automation. Mechanisation refers to the
use of a tool or a machine to perform a task (Groover, 1987). If however, the machine is
capable to evaluate its input and act upon it accordingly, then we are referring to automation.
For instance a bottle filling line would also check if a bottle is filled right; if yes it would be
corked, and else redirected to a different line. This concept is also known as feedback.
Feedback is associated with the evaluation of incoming information so that the machine could
“decide” what to do next (Groover, 1987) and is therefore very information intensive.
Computerisation has enabled to expand the capacity for handling information in both quality
and quantity and paved the way for new information and communication technologies (ICT).
By linking different departments of an organisation internally as well as with its environment,
ICTs have transformed information from being a scarce resource to over abundance; initiating
a need for new concepts of information management (Krcmar, 2005).
ICT emerged from the merging of information technologies (IT) and telecommunications
(International Telecommunication Union , 2009). As a result, manual telephone operations
were digitalised boosting the quality of telephony and worldwide communication (Groover,
1987). In today’s context however ICT doesn’t only refer to the hardware in
telecommunications but to a whole range of hardware and software, communications

13. 7
infrastructure, ICT systems and tools both at inter and intra organisational levels (Krcmar,
2005). By providing communication channels, ICTs have enabled organisations enhance their
information utilisation and enabled them an easy link with their other departments and
partners all over the world.
New types of business activities which were enabled through ICT are the IT-Based Services.
Examples of such business activities includes: financial services, insurance, technical support,
media and entertainment, IT-Services, telecommunications, E-Business, E-Logistics, E-
Learning and the like. The main attribute of IT Based Services is that the means of service
provision and customer interaction is solemnly based and enabled by IT systems and
communication systems (Laqua, 2008).
2.3 Types of Automation
In manufacturing, automation can be classified into three groups: fixed automation,
programmable automation and flexible automation (Groover, 1987). In fixed automation, a
machine performs one and the same processing or assembly. The production rate is very high
and is usually the case for mass produced and low priced goods. Examples are: most of the
food processing, construction materials, car parts etc.
Programmable automation includes machines and manufacturing units which are adjustable in
order to produce variations of the same product. Different production configurations could be
accommodated by changing the sequence of production. Programmable machines are less
productive due to frequent adjustments and are thus used for batch productions; like for
instance machines which cut clothes for both men and women. Flexible automation is a
developing concept in which a machine is equipped with different tools and is instantly able
to act upon different inputs accordingly with basically no wasted time for configuration. It is
thus used mostly in designing and production of customised goods.
Another method to classify automation is based on the branches where it is implemented
(Nof, 2009) this includes:
- in the manufacturing: today almost all types of production automate
- in service: like automated teller machines (ATM) in banks
- in telecommunications: automatic dialups, use of data management systems
- in health: use of robots for surgeries
- entertainment: for instance in the film production the use of animation
- sports: virtual gyms, Wii Sports
- education: e-learning concepts
- commerce: online shopping, business registries like yellow pages
- transportation: navigation tools, traffic controllers
- and many other applications like in administration, office automation, home
automation
Other ways of classifying automation based on product type, mobility, implemented
technology, effects, productivity, regional differences etc. are also available.

14. 8
2.4 The Automation Process
In order to understand the automation process, let us first take a look at the manufacturing
process and its related automation technologies; hence automation is fully advanced in the
manufacturing sector.
At the heart of manufacturing stands value creation (Reichwald & Piller, 2009). Most of the
goods we find in nature cannot be consumed immediately and have to undergo a series of
processing. In 1824 Nicolas Carnot introduced the so called Carnot circle to model a
processing system (see Figure 2). In this model, a certain input, either row materials or semi
processed goods and energy are fed into the processing system in which a pre defined set of
actions would be implemented in order to produce a desired output.
The basic concept behind manufacturing hasn’t changed much since. Let us take a look at a
way to produce a consumable good; for instance a piece of cloth. With no automation
involved, the basic technique would involve acquiring cotton (raw material) weaving it in a
certain pattern (processing) into a piece of cloth (output). This method is obviously labour
intensive and takes a long time to complete. Mechanisation in the form of a waving loom or
any other method to replace human labour should at least increase productivity by reducing
time.
In Manufacturing, an automation process begins with a task (Groover, 1987). This could
include the joining together of two or more parts to form a new entity, series of steps
transforming the original state of an input, a kick start of a chain reaction etc. Today, enabled
through automation, manufacturing has turned into a complex process of its own. Despite the
advancements in automation however, it is still not possible to automate all the activities in a
manufacturing industry as one system (see 2.9). However, an organisation can be broken
down into sub systems (see Figure 3) which could be then linked to each other using available
technologies. Globalisation makes it possible to decentralise the activities along the chain of
value creation, so that different tasks could be undertaken in geographically separated
locations.
Some of the technologies available in automating particular aspects of a system are presented
in Table 2 below.
Figure 2: Carnot Process Circle (Source: Patton & Patton (2009)

15. 9
Automated system Functions Available technologies
Manufacturing operation
process automation
system
Designing, developing,
engineering, and
manufacturing of end
products
CAM - Computer-Aided Manufacturing
CAD - Computer-Aided Design
CAE - Computer-Aided Engineering
CAPP - Computer-Aided Process Planning
Robotics
Manufacturing Autonomous Agents
Process control and
monitoring system
Optimizing, monitoring
and control of
manufacturing processes
MRP - Materials Resource Planning
MRPII -Manufacturing Resource Planning
JIT - Just-In-Time
Shortest Route
Materials, Product-in process and
Products Database
Strategic information
systems
scanning, synthesising
and reporting
manufacturing strategic
information to decision
makers
Semantically searching of text data
Data warehouse
Data watching and scanning agent
Data interpreting
Supply chain
Management
Organising company
sourcing, coordinating
company in bond and out
bond logistics
ERP: Enterprise resource planning
RBV: Resource-Based View
TCA: Transaction Cost Analysis
KBV: Knowledge-Based View
SCT: Strategic Choice Theory
Table 2: Available technologies to automate systems (Source: based on Boyer (1999) and Sheer (1991))
Figure 3: Organisation and its sub systems (Source: own illustration)

16. 10
Two organisations differ from one another in the nature of products they produce, types of
services they provide, the kind of organisational structure they have, market environment they
are in and other aspects. In order to obtain the maximum gain from automation, it is therefore
important to introduce the right level of automation and use of technology. For instance, in
regions where labour costs are cheap, employing more personnel might create a good
company image than automating all processes. Operational effectiveness means performing
similar activities better than rivals perform them. Operational effectiveness includes but is not
limited to efficiency. It refers to any number of practices that allow a company to better utilize
its inputs by, for example, reducing defects in products or developing better products faster
(Porter, 1996). A simplified manufacturing process is shown in Figure 4.
The automation process starts from the very basic and builds up to a very complex system.
Let’s have a look at the major steps (based on Groover (1987)):
Specialization of operations: this step is the very basic step in any automation process.
What happens is a specific operation would be identified and decomposed into the
activities comprising the operation. Each activity is a precise action; for instance a
cutter moving up and down every 2 seconds.
Combined operations: in the next phase, two or more related activities would be
combined together resulting in a continuous set of actions. In the case of the cutter for
instance, a rolling line may be attached to the cutter ensuring a continuous inflow of
raw materials.
Simultaneous operations: here two or more combined operations would be merged
together resulting in operations taking place at the same time. For instance a cutter,
driller, and a hammer could operate simultaneously on the input in a defined manner.
Integration of operations: different, separate but complete operations would be
combined to become one complete manufacturing process. For instance sorting,
washing, processing, packaging… of an output on a continuous production line.
Figure 4: The manufacturing process (Source: own illustration)

17. 11
Increased flexibility: the complete production line could now be further adjusted to
accommodate variants, or other similar products requiring similar handling. For
instance a machine could be adjusted to cut both men and women clothes.
Automated inspection and control: all the inspections and control of production would
now be no longer conducted by a person standing right next to the machine, but using
a computerised mechanism regulating the production flow. The two activities
(manufacturing and controlling) need no longer take place in the same room. For
instance the controlling facilities of an oil drilling platform are on board, while drilling
takes place deep under water.
Process optimization: this aspect in the automation process is concerned mainly with
effective utilisation of resources, increasing safety, reducing energy consumption and
toxic emission and the like. Innovation and ICTs play are playing a central role in the
future development of process optimisation.
Integration of organisation: at this level, different and less related departments would
be bridged through technological solutions. Departments like marketing, human
resources, management, product development and the like could access the central
database, share resources, plan allocations and the like. This helps organisations to go
international setting up their department in the advantageous geographical locations
(Picot, Reichwald, & Wigand, 2008).
Computer integrated manufacturing and Enterprise resource planning: CIM is
concerned with integrating all activities of an organisation into one system using
computer techniques (Scheer A.-W. , 1991; Marilyn M. Helms, 2006). These
activities encompass all functions necessary to translate customer needs into a final
product. CIM starts with the development of a product concept that may exist in the
marketing organisation; includes product design and specification, usually the
responsibility of an engineering organisation; and extends through production into
delivery and after sales activities that reside in a field service or sales organisation.
Integration of these activities requires that accurate information be available when
needed and in the format required by the person or group requesting the data. The
major CIM technologies includes: part and product design, computer-aided design
(CAD), process and product planning (CAP), programming of numerically controlled
machines and material handling systems, materials requirement planning (MRP),
machine loading and scheduling, resource machining, computerized product assembly,
computer supported maintenance, quality control (CAQ). Enterprise resource planning
(ERP) refers to a computer information system that integrates all the business
activities and processes throughout an entire organisation (Marilyn M. Helms, 2006;
Scheer A.-W. , 1991). This extends the CIM technology further to integrate the
organisation and its environment. Some of the major ERP technologies include:
supply chain management, customer relationship management (CRM), material
requirements planning (MRP), manufacturing resource planning (MRP II), and human

18. 12
resource planning (HR) to mention some (see also Table 2). A continuous task in
automation would be the continuous fully proprietary systems into fully automated
control of a plant operation (Peter Terwiesch, 2009).
2.5 Automation and its Impacts: Social Aspects
The impact of automation on individuals and societies is beyond measures. Today, almost
every aspect of our day to day activities, this particularly for people living in developed
countries, is met with automation in one way or another. This includes computers,
households, kitchen appliances, home appliances, toys, banking, acquiring of goods,
communication, transportation, workplace etc. But the most impacts of automation are
observed in the quality of life in the industrialized world. Many argue, the western way of life
enabling its citizens to enjoy freedom, democracy, equality, high standards of living, and
wealth would not have been achieved without automation (Vámos, 2009). For instance
slavery was abolished first in England in 1772 and later in France in 1794 shortly after the
first Industrial Revolution (www.ilo.org, 1996; Vámos, 2009) mainly because of substitution
of human labour through machines. Similarly child labour was abolished in many European
countries by 1921 and in the USA by 1938 (Vámos, 2009). Also a UN report shows that in the
developed countries the average life expectancy at birth lies above 77 years, whereas that of
the developing countries lies below 66; the world average being 66.57 years (www.un.org,
2006). These and other factors led to the formation of highly educated, service oriented (in
some countries up to 80% of GDP) middle class societies enjoying high standards of living.
Table 3 below summarises some of the key contrast between the developed and developing
world.
Table 3: Regional Comparison of Standards of Living (Source: own illustration)
1 Asia excluding China and Japan
2 Mainly the Sub Saharan Africa
3 GDP per Capital (PPP) in 2009 US Dollar (IMF, 2009)
4 Human Development Index (UNDP, 2009)
5 In years (WHO, 2006)
Region/country
Index
World
average
OECD
average
Germany China Asia[1]
Africa[2]
Latin
America
GDP/ Capital[3]
10,433 37,572 34,219 6,546 4,439 2,506 10,520
HDI[4]
0.753 0.932 0.947 0.772 0.612 0.514 0.821
Life
expectancy at
birth[5]
67.2 83.6 80.0 73.0 68.3 61.2 74.7
Literacy[6]
83.9 98.9 99.0 90.9 64.2 62.3 91.0
Internet usage[7]
24.7 - 67.1 25.3 18.5 6.7 30.0
Key GDP by
sector[8]
services:
64%
industry:
32%
- services:
69.1%
industry:
30.1%
industry
48.6%
services:
40.1%
services:
46.3%
industry:
43.7%
services:
59.5%
agriculture:
23.8%
services:
65.3%
industry:
28%
Key GDP by
employment[9]
agriculture:
40.5%
services:
39%
- services:
67.8%
industry:
29.7%
agriculture:
43%
services:
32%
services:
50%
agriculture:
35%
agriculture:
66%
services:
24%
services:
66%
agriculture:
20%

19. 13
6 Percentage of population above the age of 15 that can read and right(UNESCO, 2009)
7 Percentage of Population getting access to internet (internetworldstats, 2009)
8 GDP - composition by sector(Worldfactbook, 2008)
9 Distribution of labour in different sector (Worldfactbook, 2008)
Among others, gains made on employment condition and workplace atmosphere cannot go
unnoticed. In the 1970s movements to implement new forms of labour organisations in
industrial corporations that aimed at improving labour conditions in the sense of increasing
autonomy were starting to take place. As comparison, the average work duration which stood
at 82 hours a week, is today down to 40 (Ramtin, 1991). Today values such as personal
responsibility, autonomy, self realization, and individuality are going hand in hand with
regard to quality, flexibility, increased work efficiency, and overall organisational
performance (Picot, Reichwald, & Wigand, 2008).
Another social aspect highly influenced by automation is the way we communicate. In the
recent past, millions of telephone calls which would be passed through human operators are
now handled by automatic switching machines(Jrank Encyclopedia), making worldwide
communication readily available. Also the more recent communication channels such as
email and social networks like Facebook and twitter are only made possible through
information technologies which in turn are the result of automation.
2.6 Automation and its Impacts: Economic Aspects
Capital is the driving force behind the economy of today (Ramtin, 1991). Capital could be
understood as investments in a new technology, acquiring and maintaining of manufacturing
tools and facilities, investments into education and research as well as human capital. In
manufacturing, unlike machines and other tools human capital is highly prone to volatile
humanly factors like: fatigue, sickness, emotions, falling productivity, physical capacity,
falling efficiency with longer hours, etc.; factors which are not known to tools and machines.
This puts a significant impact on the volume and quality of the products. In introducing their
renowned productivity equation, Charles Cobb and Paul Douglas (Cobb & Douglas, 1928)
suggest that investments into a factory in the form of machines and tools would reduce human
shortfalls in production. For production the equation is: Y = ALα
Kβ
where:
• Y= the monetary value of all goods produced in a year (production amount)
• L= labour input
• K= capital input
• A= total factor productivity: factors not directly caused by input but that does influence the output; e.g.
good weather and increased agricultural output
• α and β are the output elasticities of labour and capital, respectively. These values are constants
determined by available technology
The labour factor having a linear impact on productivity and largely remaining constant (one
cannot increase the labour force indefinitely); it falls on the capital input (automation) to steer
up production. And this effect of capital is the only one considered in economics theory
(Ravazzi & Villa, 2009). This suggestion might lead to the conclusion that, the more
machines replace human labour, the higher the productivity. It is important to notice though
that this theory was developed in the 1930´s where most of supply and demand was not yet
balanced and automation was still at its infant stage (see 2.1).

20. 14
In the seventies and eighties, as automation was reaching maturity, the leading economic
theory was the Walrasian auctioneer set in a market with a balanced supply and demand in a
system with perfect competition (Reichwald & Piller, 2009). The economic landscape to date
could not be more contradictory to these presumptions. Firms today are faced with multiple
challenges, which are at the same time opportunities, in meeting their customers’ demands.
Global competition from emerging economies with lower cost of production, the presence of
information and communication technologies, availability of advanced technologies, shifting
consumer behaviour, demographic developments, appearance of electronic market places etc
are all contributors to the tuff environment. Table 4 summarizes the major economic changes
shaped mainly by automation and its effects.
Major Event In the 1940’s Present
Consumer behaviour functionality oriented quality and customisation oriented
Product variety small to no variety from abundant variety to
customer’s own creation
Outlet channels traditional markets and shops stores, online outlets, home
delivery
Payment methods paper money and checks electronic payments, online banks,
paper money
Production facilities mostly all manufacturing units
located at same place producing
everything in house
global sourcing of raw materials,
decentralised production units
Production machines large and noisy, manually operated
machines
computerised and environment
friendly machines
Working conditions long working hours in loud and
polluting factories
labour unions constantly strive for
improved working conditions
Table 4: Contrasts in economic activities (Source: own illustration)
Globalisation has made it possible for world economies to unite and maximize the potential to
utilize resources. Flexible and efficient small technologies are enabling even the most remote
parts of our planet accessible (Boyer, 1999). As a result, automation based on flexible
technologies no longer involves physically linking various centres; instead, various
technologies can now be linked together electronically.
2.7 Automation and its Impacts: Organisational Aspects
This section is about the impacts of automation on firms, companies and institutions. Like any
other socio economic components, organisations are constantly under pressure to adapt to
new market and competition conditions. In the traditional industrial organisations, the
Tayloristic principles of scientific management i.e. value chain conceptualisation, classic
management tools like leadership, incentives and control system, have become a defining
factor of an organisation’s structure (Picot, Reichwald, & Wigand, 2008). The main concepts
behind the principles of the scientific management are (Reichwald & Piller, 2009):
• Focus on work methods, on maximum work specialization, and job breakdown
• Separation of managerial and operational work

21. 15
• The physical exclusion of all planning, governing, and controlling tasks from
manufacturing.
These principles have proven successful to date do to the following premises (Picot,
Reichwald, & Wigand, 2008):
• Products have relatively long life cycles
• Stable sales markets
• Limited number of competitors(with known weaknesses and strengths)
• Low-cost natural resources and low environmental burdens for firms
• The general availability of highly qualified and motivated workers
As we can all today witness most of the above mentioned premises are not anymore
applicable today. Changing human social aspects (see 2.5), shifting consumer behaviour,
availability of modern technology and information and communication tools as well as stiff
competition from emerging markets is forcing organisations to restructure and adopt. These
developments are forcing organisations to move from "automate" stage towards "informate"
stage and "transformation" stage. This transformation requires companies to focus on external
challenge and uncertainty, and to appropriately react to the changes by justifying their internal
structure and strategies (Xu & Kaye, 1997).
In modern organisations, economic advantages could be realized through change in location
through, for example: closer market proximity, exploration of cost advantages, transport and
supply advantages and trend towards geographical decentralisation (Picot, Reichwald, &
Wigand, 2008).
Good examples of firms which were able to adapt to the changing market situation include:
Dell with its customised personal computers, Amazon which has digitalised the selling of
books, and clothing companies like Zara which supply their different markets with different
lines of products. The most notable artefacts of such modern organisations today are:
• Restructuring of the company organisation: depending on the nature and complexity
of their products formerly hierarchical organisations are changing to become modular
organisations, virtual organisations or strategic networks (Picot, Reichwald, &
Wigand, 2008).
• Process orientation: by doing so organisations could manage to improve production
efficiency and product quality, increase flexibility and be better prepared to respond to
changing customer demands. In fact some researchers argue that control and re-
engineering of manufacturing processes would determine the future of modern
manufacturing (Boyer, 1999).
• Customer orientation: in his book “Interaktive Wertschöpfung”, Ralf Reichwald
emphasizes the focus on open innovation, mass customization and individualization as
ways of involving customers into in to the value creating chain (Reichwald & Piller,
2009). Nike as an example enables its customers to create their own shoes online
(http://nikeid.nike.com) which it would then produce and ship to the customer.

22. 16
• Developing smaller organisation units and decentralization decision making: having
its different units scattered over different geographical locations, firms can no longer
sustain a hierarchical internal organisation where one boss tries to oversee all the
firm’s activities. Small and autonomous organisational units are thus better suited in
the current economic environments (Picot, Reichwald, & Wigand, 2008).
The dynamics of transformation observed in organisations from cottage industries first to
scientific management (Taylorism) and now to modular organisation was mainly made
possible through automation (see 2.2, 2.4). New technologies behind production and control,
information and communication technologies, the internet as a market and communication
platform, are all results of automation.
Nevertheless, despite the technologies available, many big and influential organisations
haven’t been able to abandon hierarchies and reap all the benefits of automation (Picot,
Reichwald, & Wigand, 2008). Kenneth Boyer (1999) explains the possible reasons for this in
his work on evolution of automation. The main ones are:
- It is reasonable to expect that there is a learning curve associated with new
technologies that hinders the immediate realization of performance gains following
their installation.
- It is conceivable that there is a lag period during which old products are cleared out
of the system.
- And finally, organisations that replace workers with automated manufacturing
tools may not immediately realize performance improvements due to the initial
costs associated with downsizing the workforce
This concludes investments in automated manufacturing tools are positively related to
performance improvements at the plant level. The timing of performance improvements as a
result of investments in automation is however likely to be delayed (Boyer, 1999)
2.8 Automate or not to Automate?
After the Second World War most of the manufacturing firms were caught with the dilemma
whether they should invest in automation or whether not (Nof, 2009). The extent to which one
should automate, as the classified advantages one could reap were never clear (2.1).
With the introduction of computing technologies, banks and other project and service oriented
organisations which switched to automated data processing, were able to provide faster and
more reliable services to their customers, thus gaining an upper hand over their competitors
which failed to automate (Ramtin, 1991). With the new wave of computerization which
started in the late 1980’ies and early 1990’ies, information and communication technologies
were permanently integrated into manufacturing and the way of doing business. This changed
the landscape of information availability from a “scarce resource” before computerization to
“over abundance” afterwards (Krcmar, 2005). This effect led to the gradual elimination of
organisations which failed to cope with the trend.

23. 17
Figure 1 shows, that although the availability of business-relevant information has drastically
improved, the number of the analytical personnel to make critical decisions is falling
compared to the number of critical decisions made in a firm.
Today the potential and advantages of automation in the manufacturing are undisputed. Some
of the main advantages of automation are: increased productivity, improved product quality,
standardized products, reduced manufacturing lead time and safety for the workers (Groover,
1987).
However the changing consumer behaviour (see 2.5; 2.6; 2.7) with tendencies towards more
customisation, handmade one of a kind goods especially luxury goods which involve less or
no automation are on the rise again (Reichwald & Piller, 2009). It is worthwhile to note
though, that this individualised finishing is not fully independent from automation, but merely
an extension to an already finished product by giving it an artistic touch. This might lead to
the assumption that the new trend of hand finished individualised goods are a combined result
of automated and non automated efforts.
2.9 The limits of automation
In 250 BC Archimedes is said to have remarked: “Give me a lever which is long enough and a
place to stand on, and I will move the Earth”. Obviously this request wasn´t met. The
limitations are even formulated within the request itself. This gives perhaps a clue to the fact
that so too are many aspects of automation met with limitations. Unique with automation is
however that its limits appear to be bounded between extremes. The most defining are:
Automation potential vs. advancements in the technology: even if automation attempts are
known from the very old days (see 2.1), its advancement has been tied up by the gains in
science and technology which in turn depend on research and innovation in the respective
fields. Despite progress in technology, it is not possible to mechanise or model an entire
complex system (Patton & Patton, 2009). The main reason for this is that any modelling is
done from a particular perspective or view. For instance, we could look at an organisation
form a manufacturing perspective or management perspective and so on. In this way it is
possible to mechanise an aspect of a system. Per definition, a system is a sum of its parts
(Marilyn M. Helms, 2006). Otherwise it is no longer a system the more diluted its
components become. Other aspects of automation that have been prone to the advancements
in technology are selected fields in research and development. The automation of DNA
extraction in the biology for instance, had to wait for the advancement in technology before it
could be realised.
Abstraction vs. Generalization: there exists a dilemma in the field of computer science that if
a component is too large to handle, then one has to go one abstraction level deeper. The
further one repeats these steps, the more complex the system gets due to additional interfaces
and larger communication expense (Bruegge & Dutoit, 2002). So an optimal system has to be
mid way between complexity and over simplification. The case with automation is very
similar. The more challenging a task becomes, the deeper and thus more complex the level of
automation.

24. 18
After all it is only possible to automate and abstract to the level still manageable either by a
controlling system or a person. Thus it is only possible to mechanise what is within human
cognitive ability. “What we cannot design and model, we cannot mechanize (Patton & Patton,
2009)”.
Reactivity vs. functionality: in robotics there are two main extremes; a robot could be made
very reactive i.e. it reacts to every input from its environment, or it could be functional, i.e.
performing only one pre defined activity. Both of these extremes are relatively easy to handle.
The main challenge in robotics is though; to have a system that is both reactive and functional
being capable to interact with its surrounding while fulfilling its functionality (Woolridge,
2001). As automation aims to replace human labour input through machines, finding the right
balance between reactivity (a human behaviour) and functionality (machine behaviour)
determines the outcome of the automated aspect.
Society’s perspective: this theme looks at automation from the human perspective. Here, it is
not about whether a task could be automated but rather whether it should be automated. For
instance, it might not make a big difference if one withdraws his money from an ATM or
from a teller at the counter, but if we go to a hotel or a restaurant where people seek social
contacts, it is much more important that a person greats us at the door than a machine. This
issue could obviously be discussed from different viewpoints; but still, it would influence
automation decisions in one way or the other.
2.10 Challenges Automating Services
Unlike most of the traditional industries such as automotive engineering or food processing,
there is no similar systematic engineering in the service sector (Laqua, 2008). There are for
instance no formal product models, production platforms, product line strategies, component
engineering, or life cycle management (Laqua, 2008).
The main reason for this is the unique characteristics of services that distinguish them from
manufactured goods. Another point why services didn’t get enough attention in automation is
that most of the concepts of automation were developed having concrete production lines and
material product in mind ( Bullinger; Scheer, 2006).
Figure 5: Increasing complexity with increasing abstraction
(Source: own illustration)

25. 19
The nature and types of services are discussed in section 3.1of this thesis. Some of the major
attributes of services making it difficult to automate them are discussed below:
Customer participation in the service process: the requirement for the customer to be a
participating actor in the chain of value creation makes it for the service provider to
take automation measures one sided. Automation systems are hardly sold off the shelf,
but are designed for a specific plant; engineering costs are the major portion of the
price of an automation system (Peter Terwiesch, 2009). The unpredictable nature of
human behaviour makes the development of such a system very challenging. Another
challenge related to the live presence of the customer is quality of the service and its
management. The perceived quality by the customer would influence the outcome of
the service (Fitzsimmons & Fitzsimmons, 2006).
Simultaneity and perishability: due to this attribute one cannot concept a supply chain
management system, warehousing, in bond and out bond logistics, show rooms and
displays in the same way as for manufactured goods. The challenge is once again
related to the materialistic nature of manufactured goods; which led to the result that
most automation ignores this perishable nature of services.
Heterogeneity: services are highly heterogeneous. In fact no two services are the same
(Bruhn & Stauss, 2007). This makes it impossible to have a mass production of
services. A machine can only perform a predefined activity resulting in the same
output. The heterogeneous nature of services makes it impossible to produce two
services on the same platform.
Marketing orientation: throughout the 60ies and 70ies as manufacturing was at its
peak, services were considered as part of the marketing department (Bullinger,
Fähnrich, & Meiren, 2003). Until today the design and management of services takes
most of its roots from marketing concepts (Meffert & Bruhn, 2009). This is obviously
an obstacle trying to automate services hence automation finds its roots in the
engineering (Groover, 1987). In order to bring these two fields closer together, one
needs to undertake adjustments to both fields so it becomes possible to model and
design as well as manage services using engineering tools.
Attribute Manufactured goods Services Automation challenge
Nature of product Tangible material goods Non material goods Supply chain management,
material logistics are of less
significance and should be
modelled differently
Customer
interaction
Products could be
delivered to customer
via various channels.
Customer and producer
do not need to be at the
same place
Customer and service
provider are in live
contact. This could be
face to face or ICT
enabled
Company facilities should be
customer oriented. This could
require more flexibility from
the service provider in order
to reach his customers.
Product
development
R&D departments are
responsible for new
products. Different
tools such as CIM are
available
No standard product
development method
Automation should consider a
standard way to develop new
services taking into account
company’s potential and
market demand

26. 20
Durability Material goods could be
stored over a longer
period of time or have a
shelf life
Services cannot be
stored or transferred
i.e. they are
perishable
On one hand this means no
need for warehousing and
logistics, but at the same time,
provider and consumer should
be able to interact at the same
time
Heterogeneous
nature of product
The same or similar
products could be
reproduced in mass
production
Even if a service
provider was to offer
similar services, the
customer interaction
makes the outcome
different
This makes automated quality
control very tricky, especially
in cases where exceptions
occur
Means of acquiring Normally a onetime
purchase with or
without (automatic)
repurchase
Mostly over a period
of time regulated by a
binding contract
Finding the right terms for
service provider and customer
simultaneously poses the
greatest challenge
Table 5: Challenges automating services (Source: own illustration)
2.11 Conclusion
Since pre historic dates, we human beings have been tirelessly looking for ways to simplify
and enhance our way of life. One of the historic breakthroughs is automation. Today
automation is associated with a technology implementing mechanical, electronic and
computer based systems to operate and control production overtaking the tasks which would
otherwise had to be done by humans or not possible to perform at all. In manufacturing,
automation can be classified into three groups: fixed automation, programmable automation
and flexible automation. Basically there are four basic components that make up any
automation: an automation platform which is a machine, a tool, or an installation on which
the automation process is carried on; autonomy is the factor (automatic control) which runs on
the platform. A process describes which specific set of tasks a platform performs; and power
source i.e. input of energy.
Automation has brought about significant changes to the social, economic and organisational
aspects of our daily lives. Due to mechanisation in the primary and later secondary economic
sectors, human labour was replaced through machines forcing the freed workforce engage in
intellectual and service oriented fields. Probably one of the most significant achievements of
automation is the enhancement of the quality of life in industrialised nations. This could be
observed in the high standards of living and medical and literacy coverage in these nations.
In the economy, new alternatives of conducting business were created through the merger
between information technologies and telecommunications making way to new channels such
as E-Business, IT Based Services, E-Learning and the like. Organisations have also been
adapting to the new IT enabled environment. Availability of information and communication
technologies is forcing many organisations to restructure from hierarchical to more flexible
modular organisations making them more competitive in the currently globalised world.
Despite the shift from the secondary to the tertiary sector, automation is still focused mainly
on manufacturing. From the literature reviewed three reasons could be identified:

27. 21
Nature of services: the fact that services unlike manufactured goods have the property
of being heterogeneous, not tangible, perishable, customer involvement etc. is the
main challenge for their automation. Machines can in best case perform a pre
programmed task and are not in a position to predict a human behaviour. The
customer participation in the value creation process in services makes the outcome of
an interaction highly unpredictable and thus challenging to model suitable for a
machine.
Marketing orientation of services: until recently, services have been considered as a
subdivision of the marketing department ( Bullinger; Scheer, 2006). Most of the
methodologies to design, develop and manage services have been therefore derived
out of management and marketing concepts. Over the course of time, this has deprived
services from having an engineering touch making it difficult to integrate them with
the purely engineering aspects of automation.
Product orientation of automation: from its conception and through its development
automation had only physical products in mind. In older books automation is rarely
mentioned in relation to services. Aspect of automation such as logistics, supply chain
management, design, manufacturing, warehousing, distribution etc. were all focused
on the materialistic nature of the product. This creates a drift when it comes to
automating services – which are not of materialistic nature.

28. 22
3 Services
Which approaches and methodologies are there for designing and creating services? This
section looks at the precise methodologies to classify and design services and their process.
If one is to define services as “every human activity and contribution is a service” (Schüller,
1967, S. 19), then services are as old as mankind. But it is not until the 1960’s that,
economists and other intellectuals started to take services seriously ( Bullinger; Scheer, 2006;
Meffert & Bruhn, 2009). This is mainly because through advancement in technology and
increased automation (See 2.6) more and more manual jobs in the advanced economies were
replaced through machines giving a significant boost to the service sector (Bruhn & Stauss,
2007). In 1992 in Germany, the service sector overtook for the first time the manufacturing
sector in terms of both contributions to overall GDP as well as number of people employed in
the service sector (Statistisches Bundesamt, 2009). Today the service sector employs around
70% of the overall workforce in Germany (See
Table 3).
In today’s economy services play a very key role extending into every aspect of our daily life.
To mention just a few, services include:
- Business functions: consulting, customer service, human resources, administration
- Childcare
- Cleaning, repair and maintenance services: janitors, gardeners, mechanics
- Construction: carpentry, electricians, plumbing
- Death care: coroners, funeral homes
- Dispute resolution and prevention services: arbitration, courts of law, diplomacy,
incarceration, law enforcement, lawyers, mediation, military, negotiation
- Education: teaching and access to information, library, museum, school
- Entertainment; gambling, movie, theatres, performing arts productions, sex industry,
radio, television
- Fabric care: dry cleaning, self-service laundry
- Financial services: accountancy, banks and building societies, real estate, stock
brokerages, tax preparation
- Grooming industry: personal grooming, hairdressing, manicurist / pedicurist, dental
hygienist
- Health care: all health care professions provide services
- Hospitality industry
- Information services: data processing, database services, interpreting, translation
- Risk management: insurance, security

29. 23
- Social services: social work
- Transportation
- Public utility: electric power, natural gas, telecommunications, waste management,
water industry
- Sports
This section of the thesis looks at the possible ways to classify services and identifies which
possible approaches and methodologies there are for designing and creating services? Of
special interest are the methodologies and tools applied behind the concepts of service
engineering and service blueprinting.
In doing so this section looks at how automation has been considered and implemented in
designing and providing of services?
3.1 The Nature of Services
Like products, services are also economic goods that could be produced, marketed, and
consumed, providing a certain amount of value for both the customer and the service provider
(Meffert & Bruhn, 2009; Reichwald & Piller, 2009). In developing services there are thus
three key factors to consider (Meffert & Bruhn, 2009):
Figure 6: Role of Services in an Economy (Source: Guile & Quinn (1988))

30. 24
Service potential: these are capacities which are at the verge to be exploited in order to
be consumed as fully pledged services bringing values to their consumers. This could
be in a form of a provision or supply (e.g. insurance provision) or in the form of
assignment or deployment of potential workforce or knowledge (e.g. an available
hairdresser).
Service process: during this process, internal factors (employees, software, and office
spaces) and external factors (factors not under the direct influence of the service
provider) are combined in the service provision process.
Result (value) created: the process of combining the internal and external factors is
aimed at creating value or providing results to people (e.g. getting a haircut or
relaxation after a massage) or objects (car repair)
This three factors create the dimension of a service (See Figure 7) ( Bullinger; Scheer, 2006).
Unlike in the production of material goods one could clearly see that services require both the
service provider and the service recipient to be physically or intellectually present at one and
the same place. The recipient however doesn’t need to be necessarily a human being. It could
be for example an animal receiving treatment, or an object of material or non-material nature
(a car for instance) being repaired (see Table 6). But different to all other social interactions,
service interactions are result or output oriented (Kingman-Brundage, 1992). This means both
parties enter a service interaction pursuing a certain outcome.
The result of a service process is a gain in non materialistic value by the service recipient (
Bullinger; Scheer, 2006); basically a change of state is incurred on the recipient; for instance a
machine which has been repaired, change in location after having taken a bus, a change in the
emotional state after having attend a concert etc. It is worth to mention thought, there are
slight uncertainties about the purely non-materialistic nature of services (Meffert & Bruhn,
2009); for instance the making of a bespoke suit which is cut for a particular customer.
Figure 7: Dimensions of a Service (Source: Bullinger and Scheer (2006, S. 24))

31. 25
Nature of the service
process
Recipient of the service
Human beings Objects
Tangible Services intended for the
human body
- Health treatment
- Beauty salons
- Restaurants
- Hairdresser
Requires the physical presence
of the customer
Services intended for objects
- Transportation/logistics
- Repair services
- Cleaning services
- Garbage collection
Does not require the physical
presence of the customer
Intangible Services intended for the
human intellect
- Education
- Radio and television
- Information services
- Theatre
Requires the intellectual
presence of the customer
Services intended for non tangible
assets
- Banking
- (Tax) counselling
- Insurance
- Legal services
Minimal (time wise) requirement
of intellectual presence
Table 6: Nature of the service process (Source: Lovelock (1992))
Services are very distinctive in their nature than manufactured products, triggering a need for
a different approach in handling them. Some of the main attributes of services are:
Customer participation in the service process: upon acquiring manufactured goods,
consumers basically have no clue how and under which circumstances a particular
product has found its way to the displays of shops and show rooms whereas; services
are produced in the front office of a service facility with the customer involved in the
value creation (Fitzsimmons & Fitzsimmons, 2006; Bruhn & Stauss, 2007). A factory-
like back office is normally where a service provider generates and manages the
services he is to provide, but unlike manufactured goods, value is first created during
the service process through the synchronous interaction between provider and
customer (Berekoven, 1983). This makes service quality to become vulnerable to the
atmosphere in the front office of a service facility to factors like attitude and mood of
the customer, furniture in a room etc. (Fitzsimmons & Fitzsimmons, 2006).
Simultaneity: services are created and consumed at the same time (Bruhn & Stauss,
2007). This attribute makes it impossible to be able to store or make an inventory of
services. While it is possible, by predicting demand, for manufacturers to optimise
their output, service providers’ deal with demand usually as it comes. Services are
therefore described as operating in “open systems” referring to the full impact of
demand variations being transmitted on the systems.

32. 26
Perishability: what service providers do is that they create a service potential (see
Figure 7). If this potential is not taken advantage of, no value is created and the
available service perishes for ever; for instance empty seats in an airplane or the time a
dentist waits before a patient arrives. The only means a service provider poses to meet
all the demand (apart from increasing resources) is by delaying or delegating the
service process by making customers wait, offering seasonal discounts etc.
(Fitzsimmons & Fitzsimmons, 2006).
Intangibility: services cannot be touched, seen, smelt or felt. This makes it difficult
especially for the customer to anticipate what to expect. Customers therefore rely
merely on the reputation of the service provider, government restrictions and
guidelines regarding a particular service, customers own experience, and in some
cases even interpersonal skills (Lovelock C. , 1992; Fitzsimmons & Fitzsimmons,
2006).
Heterogeneity: “no two services are the same” (Bruhn & Stauss, 2007). The intangible
nature of a service and the participation of the customer create variations in services
from customer to customer. This variation could vary from absolutely minimal and
negligible (two passengers taking the same bus), to completely different (two patients
seeing the same doctor).
3.2 Types of Services
As described in the introductory part, services possess unique features. It is therefore
important to classify services alongside similarities in order to achieve a deeper insight from a
desired point of view. Different scholars have attempted to classify services in a certain way
driven by a specific need for doing so. This could be for marketing, policy making, new
service developing, employment etc. Some major attempts are presented below:
In their book “Dienstleistungsmodellierung“,(Meffert & Bruhn, 2009) classify services into
individual services and automated services. Individual services are those that are intended at a
particular person, object or organisation; and are therefore different from customer to
customer (e.g. hair care). Automated services on the other hand are intended for a wider circle
of “service customers” resulting mainly in a repetitive and very similar output. Automated
services are mostly carried out by machines as a service provider (e.g. an ATM). These two
categories are further classified into human related and object related services. This
classification describes the recipient of the service i.e. an object or a human being (see Table
6). Each of these sub divisions is further classified into result oriented verses process oriented
services. In result oriented services, the outcome of a service is known or at least expected;
for instance getting a car repaired, the outcome is that the care is now functioning properly.
On the other hand, the outcome of a process oriented service is not specifically clear or even
in some cases the process doesn’t end at all (e.g. security service at an airport). The detailed
classification is shown in Figure 8 below.
In his renowned work: Classifying Services to Gain Strategic Marketing Insights, Harvard
Professor Christopher Lovelock made the very first attempt in trying to classify services

33. 27
alongside their own attributes, unlike other works until that time which categorise services
similar to manufactured goods. This work was later adopted by many renowned researchers in
the field including Meffert and Bullinger. As the title suggests, the driving force for his
classifications is to develop a marketing strategy for a selected group of services. In the above
mentioned work, Lovelock proposes three methods to classifying services:
(1) Depending on what kind of relationship a service organization has with its customers. In
this context a relationship with customers could be binding or just a onetime interaction. The
provided service could be of a continuous nature or a discrete transaction (see Table 7).
Figure 8: Types of Services (Source: Meffert & Bruhn (2009, S. 28))

34. 28
Type of Relationship between the Service Organization
and its Customers
Nature of Service Delivery "Membership" Relationship No Formal Relationship
Continuous Delivery of
Service
insurance
telephone subscription
college enrolment
banking
American Automobile
Association
radio station
police protection
lighthouse
public highway
Discrete Transactions
long-distance phone calls
theatre series subscription
commuter ticket or transit pass
car rental
mall service
toll highway
pay phone
movie theatre
public transportation
restaurant
Table 7: Classifying of services with regard to relationships with customers (Source: Lovelock (1983, S.
13))
(2) Depending on how much room there is for customization and judgment. This
classification makes contrasts between services that are standardised (e.g. public
transportation) and those with enough room for more customisation (see Table 8)
Extent to Which Customer
Contact Personnel Exercise
Judgment in Meeting
Individual Customer
Needs:
Extent to Which Service Characteristics Are Customized
High Low
High
legal services
health care/surgery
architectural design
executive search firm
real estate agency
taxi service
beautician
plumber
education (tutorials)
education (large classes)
preventive health programs
Low
telephone service
hotel services
retail banking (excl. major
loans)
good restaurant
public transportation
routine appliance repair
fast food restaurant
movie theatre
spectator sports
Table 8: Classifying of services with regard to customization and judgment in service delivery (Source
Lovelock (1983, S. 15))
(3) Depending on the nature of demand and supply of a service. This is probably one of the
most intriguing ways to classify services. As it has been explained in section 3.1 above,
services cannot be inventoried. So the classic phenomenon is that on one end one has wasted
potentials (e.g. hotel rooms that remain vacant) and on the other unsatisfied demand (e.g. if all

35. 29
rooms in a hotel are booked, customers are turned away). In service management, optimising
peak hours (season) and low hours (season) is a question of survival (Fitzsimmons &
Fitzsimmons, 2006). Table 9 classifies the nature of demand for a service relative to supply.
Extent to Which Supply
is Constrained
Extent of Demand Fluctuations over Time
Wide Narrow
Peak Demand Can Usually
Be Met without a Major
Delay
1
electricity
natural gas
telephone
hospital maternity unit
police and fire emergencies
2
insurance
legal services
banking
laundry and dry cleaning
Peak Demand Regularly
Exceeds Capacity
4
accounting and tax
preparation
passenger transportation
hotels and motels
restaurants
theatres
3
services similar to those in
2 but
which have insufficient
capacity for
their base level of business
Table 9: Classifying of services with regard to the nature of demand for a service relative to supply
(Source: Lovelock (1983, S. 17))
Yet other ways of classifying and categorising services also do exist. These include:
Services from the occupational point of view: as proposed by (Schüller, 1967). In this
view, Schüller suggests that every (work related) activity of human beings is aimed at
value creation through provision of services be it on a human to human level or a
human-object interaction as in physical labour.
Service as a process: (Berekoven, 1983) views services as a process in which the
service requester and provider are in continuous value creation process. Berekoven
recognises the need for the service provider and customer to be synchronous during
the process which most probably refers to the physical presence of both partners at the
same time and place.
Result driven view: this view was proposed by (Maleri, 1997) which suggests services
are the result of the process and not the process itself, hence it is only the end result
that has value and could thus be considered as an economic good. With he defends the
strict non-material nature of services.
Potential oriented view: this view suggests the availability of a base or potential to be
able to provide services in the first place. This is a view which is shared by many
researchers in the field (Meffert & Bruhn, 2009). For instance a hair dresser in her
saloon is a basis for a service to be provided. Customers going to the saloon have the
expectation to get (for instance) a hair cut; other services are thus not expected.
3.3 Process of the Service Development
At the heart of service development stands value creation. An economic activity, weather in
the short or the long term that doesn’t bring value for the provider as well as the customer is
basically in vain. In his ground breaking work, Michael Porter (Porter, 1985) describes the
value chain as “a process composed of many primary activities”. A primary activity is any

36. 30
activity that contributes in the creation of an end product. Apart from the primary activities,
the value creation process also relies on the supporting activities. The supporting activities are
those activities which enable for the value creation process to happen in the first place - e.g.
organisational infrastructure.
The value chain as proposed by Porter is oriented at the manufacturing industry. The primary
activities are composed of activities like inbound logistics, manufacturing, product
distribution and the like. Recently though, Porter’s value chain model is being adopted for
modelling the value chain of service as well (Fitzsimmons & Fitzsimmons, 2006; Meffert &
Bruhn, 2009). Figure 9 shows Porter’s value chain modified for services. In this diagram the
primary activities are:
Acquisition: this corresponds more or less the inbound logistics in the manufacturing.
In the case of services though, since there is no material transfer involved, the
important external factor required is the customer. So the acquisition is concerned
with acquiring customers which are later involved in the service process (Meffert &
Bruhn, 2009). This is a purely marketing approach and implements many marketing
practices including advertisement, publications and so on.
Building up the service potential: this activity summarises so to say the preparations
made by the service provider enabling him a successful transaction. This preparation
includes other sub activities such as designing a service product, hiring the required
personnel, obtaining technologies and other hardware needed for the service
environment etc. This primary activity together with acquisitions creates the basis for
a business relationship (Bruhn & Stauss, 2007).
Primary interaction: this activity is the first step into a business relationship. This
involves tasks like acquiring membership, buying a plane ticket, filling out an order
etc. This activity may or may not lead to a service provision taking place (e.g. missing
a plane) and is not required by all service interaction.
Service provision: this is the actual service process where provider and consumer
come together; the service provider (employees) exerts its input intended at the
external factor (customer) in a predefined manner (Bruhn & Stauss, 2007). This
process is aimed at creating value for both parties and continues in that matter until a
predefined goal is met or is interrupted.
After sales contact: on the long term services remain competitive and profitable from
long term relationships with their customers (Meffert & Bruhn, 2009). Unlike
manufactured goods, services cannot provide a technical guarantee or repair service to
their customers; their option to stay connected to customers is establish contact over a
longer period of time. Some of the available after sales contact include: bonus
programs, memberships, upgrade programs, thank you letters, discounts and some
others.

37. 31
The three last primary activities constitute the actual and continuous service provision
process. The circle demonstrates a repetition or provision of other services while a different
process is still running; for instance flight attendants selling duty free products during flight.
The main interest of this section is the service development and design i.e. building up the
service potential. The development of a product or service starts with an idea. This could later
be abstracted using tools such as models and reference diagrams. A service process is quite
challenging to model, since human behaviour is hard to predict (Bitran & Pedrosa, 1998). The
following section presents some of the important works on how to develop services.
In her work “Designing services that deliver”, Lynn Shostack propagates the need of a
blueprint in designing services to assure quality by suggesting that a service blueprint allows a
company to explore all the issues inherent in creating or managing a service(Shostack, 1984).
According to Shostack the steps in developing a service (blueprint) are:
Identifying processes: The first step in creating such a blueprint is mapping the
processes that constitute the service. For complex services, identifying and defining
the processes involved may be difficult and result in a large, complicated diagram.
Isolating fail points: Having diagrammed the processes involved, the designer can now
see where the system might go faulty. The identification of fail points and the design
of fail-safe processes are critical. The consequences of service failures can be greatly
reduced by analyzing fail points at the design stage. When designers and managers
think through potential problems together in advance, the quality of service execution
is invariably higher.
Establishing time frame: After diagramming a service profile, identifying processes
and vulnerabilities, and building in fail-safe measures, the designer must consider the
execution. Since all services depend on time, which is usually the major cost
Figure 9: Value Chain of a Continuous Service (Source: Modified from Bruhn and Stauss (2007, S. 59))

38. 32
determinant, the designer should establish a standard execution time. As a blueprint is
a model, the design should also allow for deviation from standard execution time
under working conditions. The amount of latitude necessary in the time frame will
depend on the complexity of the delivery.
Analyzing profitability: The major profitability factor in services is time. On one hand
service employees have got a limited time to handle their customers, on the other
hand, customers perceive short waiting and process times as higher quality. Whatever
its source, a delay can affect profits dramatically. A service designer must establish a
time-of-service-execution standard that precludes unprofitable business and maintains
productivity. Such a standard not only helps measure performance and control
uniformity and quality, it also serves as a model for distribution of the service to far-
flung locations.
Figure 15 in section 3.5 shows a service blueprint for a luxury hotel. In this diagram service
activities are divided into front and back office activities along the line of visibility.
In their work “A structured product development perspective for service operations” Bitran
and Pedrosa (1998) present an extensive literature review of product development from a
service viewpoint. Knowledge commonly required in the product or service development
process is identified and discussed. One of the proposed methods to develop services is:
Procedural plan and method. This method presents the components that integrate the design of
a service. Each component is a set of activities with a common objective as indicated by its
label. Figure 10 shows these components.
- Strategic Assessments: is an activity carried out by an organization prior to developing
new products in order to analyse potential and available capabilities. This could be
further subdivided into activities like: developing a mission statement, internal and
external analysis and finally the strategic analysis which is the outcome of the
information gathered from the previous three steps.
- Concept Development: after the organisation has identified its potentials and
capabilities the next major step is to develop a service concept. This step begins with
Figure 10: Components in the Service Development (Source: Bitran & Pedrosa (1998, S. 173))

39. 33
gathering of customer requirements. This task includes formalising social attributes
like “friendly atmosphere” into concrete service attributes and could therefore prove to
be tricky.
- System Design: based on the attributes and requirements gathered in the previous
stage, each concept is developed into an independent function. Not only would be the
functions identified but also the process describing how they interact is defined.
Architectural tools and reference models provide a great deal of help at this stage.
- Component Design: at this stage functions and processes with similar attributes are
aggregated into components. The components are of different size and could vary
from service to service. The attributes of a component are well defined and could be
modelled independent from the rest of components. The output of this stage is a set of
documents and blueprints describing every detail of the service that is about to be
created.
- Implementation: at this level the service ready to be taken full operational. Unlike
products it is impossible to run tests and make prototypes. What service organisations
commonly do is to launch a pilot project, offer discounted services and the like. This
stage would allow organisations to identify faults and take corrective measures. This
could mean starting the whole process all over.
There are certainly many other propositions on how to develop services. The driving concept
behind these is thought the common properties of services distinguishing them from
manufactured goods. Most of these concepts are from the seventies and eighties where “new
service development” was a thriving topic and are largely based on marketing concepts
(Bullinger, Fähnrich, & Meiren, 2003). In this thesis though, more scientific and engineering
based methodologies to develop services is of specific interest hence engineering based
modelling is closer to the concepts of automation. In the following two sections methods of
developing services using the concept of service engineering and service blueprinting are
discussed.
3.4 Service Engineering
With market conditions changing and social and demographic landscapes taking a new face
(see 2.5, 2.6, 2.7), the need for services to be systematically planned, designed and produced
has become very crucial(Fitzsimmons & Fitzsimmons, 2006). The term “service engineering”
was coined in the mid-nineties in Germany and Israel (Bullinger, Fähnrich, & Meiren, 2003).
Service engineering can be understood as a technical discipline concerned with the systematic
development and design of services using suitable models, methods and tools. In contrast with
the new service development, which is strictly marketing-oriented, service engineering adopts
a more technical-methodological approach, attempting to efficiently utilise existing
engineering know-how in the area of traditional product development to develop innovative
services. At the same time, however, service engineering is also concerned with the design of
a development system (Bullinger, Fähnrich, & Meiren, 2003). Tomiyama (2001) suggests
that, unlike the classic engineering fields which mainly focus on improving functionality,
service engineering strives to improve quality as well as functionality.

40. 34
As service engineering takes its roots from business administration and engineering fields –
especially software engineering, it uses standard design tools similar to those used in the
respective fields i.e. UML diagrams, ARIS House, event driven process chains (EPC), etc. An
overall service model designed in UML is shown in Figure 11.
Figure 11: Basic service model (Source: Bullinger et al. (2003))