Som ppt's session 1 -2

Service Operations Management
BY
PROF. R.SHARMA
Of
BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY
Knowledge Park-II , Greater Noida (U.P)
2323001-11(extn.217)
e-mail :rajeevzone73@yahoo.co.in
BIMECH,Greater Noida (U.P)

GHAIL

Objective of session 1
 To make you understand What's the importance of services
in Economy.
 What’s the importance of service sector in Economic
Growth.
 How economy has changed its orientation towards services
(information age)
 Why to study Service operations.
 How services are characterized.
 How to classify Services.

Session I
Why Service’s Operation

The
Term
Service
Is defined not by “what it is”, but “by what it is not”
Historically , economic reports identify activities as “service
producing” that are not “goods producing”, which includes
manufacturing, and construction and are not extraction
such as agriculutre,foresrtry, fishing and mining. So service
producing encompasses a wide variety of industries,
including retailing, wholesaling, transportation ,banking,
lodging, education , government, entertainment etc….

Definition of services:
Services are deeds, processes, and performances.
Valarie Zeithaml & Mary Jo Bitner
A service is a time-perishable, intangible experience performed
for a customer acting in the role of a co-producer.
James Fitzsimmons
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

 No finished goods inventory
 Intangibility of the product
 Simultaneous production and consumption
 Difficulty in defining and measuring quality and
productivity
 Other Differences between Manufacturing and Service
(See figure 1.1)
Definition of Service
Characteristics

Production of Services vs. Goods
Typical Differences
 Services are process focused.
 Customers served as first come, first served.
 Labor is scheduled, not the customer.
 Location often near customers.
 Product could be transported, in services producer is
transported than servies.
 Result: service production tends to be less efficient than
production of goods.

The Service/Product Continuum
 Pure Service
 No product with intrinsic value involved. e.g. lawyer
 Service/Product bundle
 Combination of product with service (most common)
 Pure Product
 Very rare. Yard sale. Blacksmith.

Comparison of Goods and Services (Figure 1.1)
100% 75% 50% 25% 0% 100%75%50%25%
Self-service groceries
Automobile
Installed carpeting
Fast-food restaurant
Gourmet restaurant
Auto maintenance
Consulting Services
Doctor, physician, lawyer
Goods Services

Service-Product Bundles
The Service-Product Bundles has three parts:
 physical goods (facilitating goods)—what you can carry
away
 tangible service (explicit service)—what the seller does
for you.
 psychological service (implicit service)—how you feel
about it.

Cycle of Service for an Airline (Figure 1.2)
Leaves
Airport
Receive
Baggage Arrives at
airport
Customer requests
schedule information
Makes
reservation
Checks
baggage and
checks in for
flight
Proceeds to gate
and security check
Receives
boarding pass
Boards
aircraft
Receives
in-flight
service
Departs
Plane

Related Concepts
 Service guarantee
 Analogous to a guarantee for a product
 Requires specific criteria and responses
 Service Recovery
 What you do to compensate the customer for bad service.

Importance of Studying operations in services
1. To start this part of study let us understand the definition
of Operations
i.e. transformation process
That converts the group of inputs into outputs
That is
Act of combining people, raw material, technology into
useable services & products
If you just think of definition it is clear it is just people who
does all “makes product & perform services”
Operation function typically employs by far more personal
than any other function

2. A large firm may need marketing department of 50 and a
treasury department i.e. A/C & Finance of 5 at the same
time it may need an operational force of 5000 to deliver its
services. E.g. Professors in university, agents in insurance,
pilots in airlines, bank branch managers
, brokers in BSE or NSE, police force, players in cricket.
Consequently the mere reason to study operation is its
sheer size.
HUL
Annual Turnover Rs. 15000 Crores
It has over 20 Consumer Products and almost 35 Brands
Kissan, Bru, Taj Mahal, Red Label,Knnor, Surf, Rin, Kotex,
Huggies, Dove, Sunsilk, clinic plus, Vim, Lux etc..
Customer 700 million
Retail outlets 1 million covered directly, product found over 6.3
million outlets.
Factories 39 number

 Its employments hierarchy
REMEMBER
HUL Model

3. It is the most revenue producing activity in any
economy
a. Employment effects
b. Out put effects
c. Money effects ( inflation)

So to understand the importance of service
We have to understand the importance of service in
economics of a nation
or
has to understand present economic structure

 According to OECD-forecast for the year 2050 , India will be
the world’s third largest economy after china & USA. Indian
economy set to grow at 10-11 percent.
 According to India Economic survey 2007-08 the size of
Indian economy set to cross $1 trillion.
 Contribution of Services to GDP is 9.9% were that of
agriculture & Industry is 4.1% & 10.5%.
 Since 2002-03 Services & Industry with annual growth of 7%
had been propelling growth of the Indian economy.
 Service Sector accounts 54% of the GDP and has been growing
at the rate of 9%. Since 1990.
 Growth of financial services comprising Banking, Insurance
and business services in the year 2006-07 is 13.9%
 Service Export has grown at a Average growth rate of 28%
since last decade.

 India has about 65% of Global offshore market and about
46% share of global business off shoring industry.
 NASSCOM study Software & Service export grew by 29% and
crossed $40 billion mark and domestic market grew at 26%
crossed $11.6 billion mark. In FY10.
Up till now 10% of the global potential has been tabbed , the
future is very promising.

To understand economic structure you have to
understand the changes this economic structure
had under gone over the last century :
Let's understand the economic stages described by
Bell (1973) .
He had described the three stages of economic
growth as
Pre-Industrial
Industrial
Post industrial

 Pre-Industrial Stage
 Society Pre industrial Society
 Game Against nature
 Pre-dominant activity Agriculture, mining
 Use of human labour Raw muscle power
 Unit of social life Extended house hold (social
ramification)
 Standard of Subsistence
Living measure
 Structure Routine, traditional , authoritative
 Technology Sheer brawn

 Industrial Stage
 Society Industrial Society
 Game Against fabricated nature
 Pre-dominant activity Goods Production
 Use of human labour Machine tending
 Unit of social life Individual (like a cog in machine)
 Standard of Accumulation of Goods
living He who dies with the most toys
 Structure Bureaucratic
 Technology Machine

 Post-Industrial Stage
 Society Post industrial Society
 Game Among Persons
 Pre-dominant activity Services
 Use of human labour Artistic, Creative & Intellectual
 Unit of social life Community
 Standard of Quality in terms of health, education
Living measure recreation etc..
 Structure Interdependent , Global
 Technology Information

4. “Cost Disease” in services is another factor which has to be
understood when in contrast to agriculture &
manufacturing . As Goods & food, service are also not less
consumed but low productivity in this foray makes it
appear ,as they are.

Contd…….
That is why even the consumption of the services remains
same its low productivity has hasn’t allowed it to lower its
cost
e.g. Rs. 3 for food
Rs. 3 for goods
Rs. 3 for services
So it represents 33% of the expenditure
Higher productivity in first two over last 4-5 decades Has
shown following
Re. 1 for Food
Re. 1 for Goods
Rs. 3 for services
Now it represents 60% of the expenditure

1950 1960 1970 1980 1990 2000 beyond
10%
20%
40%
60%
80%
100%
ServicesAgricultureWork
Force (%)
Manufacturing
Economic survey of India Report 1971-2007-08
Figure 1.3

So we have two models to understand the service
classifications
1. Customer Contact model
(Chase & Tansik)
2. Service Process Matrix
(Roger schmenner)

CUSTOMER CONTACT MODEL ( Figure 1.4)
High Contact Low Contact
Pure Mixed Quasi Manufacture
Service Service Mgf. -ing

CUSTOMER CONTACT MODEL
In this model services are classified according to the amount of
customer contact
High contact services are “pure Services” firm
Includes Hospital, Hotels, Restaurant, Aviations were
majority of their services take place in presence of
customers
Low contact services are “quasi manufacturing” firm
includes retailers ,Wholesalers, Back office facilities where
presence of customer needs to a very low extent
Where elements of both are called as “Mixed services”
firm
Like banks, insurance, entertainment, media etc..

Customer Contact (1)
 Definition of “contact”—interaction between service
provider and the customer. Each “moment of truth” is
a contact.

Moments of Truth
 Moment of Truth = customer contact with a service
system.
 Service is defined as the cumulative effect of all the
moments of truth.
 One failed moment of truth can cause failure of the entire
service.
Therefore, service systems must be
designed as a whole, not in parts.

Moments of Truth
Examples from book:
King fisher airlines has 50,000 moments
of truth per day.
Resort Kingfisher has 6,000,000 moments
of truth per day. (At Ambala)

For designing a good service operation process we
should remember
Perceived Service = f(all previous moments of truth)

Potential inefficiency in services is a function of the amount
of customer contact
 Why?
 Customer determines the time
 Customer determines the order of service
 Customer influences what happens during the service

Customers are considered as dominant force in designing service systems
Thus considered as a guiding principle
this simple yet powerful idea can be formulated as:
Potential Efficiency= f (1-Customer contact time/Service
creation time)
This equation indicates that potential efficiency of a service is limited by
the amount of time the customer is involved in the system
But Remember that is not necessarily desirable to maximize efficiency

This idea state that the
1. Firms having similar business must share their best practices
2. High contact and low contact areas with in the industries should
be managed differently
e.g.
A. Contact enhancing strategies
Hiring people oriented workers
Partitioning back office , non contact activities away from the
customer views and should be employed in high contact areas
Bill collection center of telecom cos., bill served by waiter and not at
the collection center or accounting clerk, enquired at the
reception of the cos. Office rather than direct contact with the
department.
B. Contact reduction strategies Such as appointment systems
Drop boxes, ATMs, Online booking of resorts, buses, trains etc..

 High contact (front room) services
 Direct customer contact
 Customer has control of process
 Low-contact (back room) services
 Out of sight of customer
 Provider has control of process
 Goal: move as much activity as possible to the back
room—why?

Again for Designing a good service operation concept
We must consider the
Degree of Decoupling of Service
i.e. to define proportion of Front & Back office

Service Matrix 2nd Model (Figure 1.5)
Low High
Low
High
Service factory
Airlines (traditional)
Interstate Bus Services
Hotels
Resort ,
Degree of Interaction and Customization
Mass services
Wholesaling, Retailing
Schools
Retail aspects of
commercial banking
Hospitals
Police Services
Professional Services
Lawyers
Doctors
Accountants
Architects
Service shop
Specialty Hospitals
Auto repair Shops
Financial Services Companies
Art Gallery
DegreeofLaborintensity

Service Matrix 2nd Model (Figure 1.6)
Low High
Low
High
Service factory
Airlines (traditional)
Aviation
Hotels, Resort ,
1PL (Truckers)
Degree of Interaction and Customization
Mass services
Wholesaling, Retailing
Schools
Retail aspects of
commercial banking
Hospitals
Police Services
Professional Services
Lawyers
Doctors
Accountants
Architects
Service shop
Specialty Hospitals
Auto repair Shops
Financial Services Companies
Art Gallery
DegreeofLaborintensity

This matrix is based on the type of service process firm follows
e.g. a highly customized service process or highly labour
intensive services process i.e. if customization is high we have
service shop or professional service (having capital intensive
service) providers, if labour intensity is high Mass services
otherwise just a service factory .
So if you see
Each quadrant faces managerial challenges unique to the
process within that quadrant .
That is how we will going to develop homogeneity in
service operation practices

Low interaction &
customization
Marketing
Making service warm
Attention to physical surroundings
Managing a fairly rigid hierarchy
Standardized procedure
Low labour Intensity
 Capital decision
 Technology Advancement
 managing demand to avoid peaks
 Scheduling service delivery
High Labour Intensity
 hiring training
 employee welfare
 schedule workforce
 managing growth
High interaction &
customization
fighting cost increase
 maintaining quality
 Reacting to consumer intervention in
process
 Managing flat hierarchy with loose
subordinate –superior relation
 gaining employee loyalty

Assignment: 01 . Presentation on
Models for understanding the relationship between
Operational Driver & Business Performance.
1. Balance Business Scorecard ( Kaplan & Norton 1996)
2. Service Profit Chain (Heskett et al. 1997)
3. The result Determinant Framework ( Fitzgerald et al.
1991)
4. The performance pyramid ( Lynch & Cross 1991)
5. Return on Quality ( Rust et al 1995)
6. The business Excellence Model ( EFQM 1999)
7. Data envelop analysis ( DEA) (A. Charnes, W.W.
Cooper, E Rohdes) (Banker& Morey study)

Abhi Class Chalega……………..

Som ppt's session 1 -2

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