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