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ALFRED
P.
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
Framework
for
by
Gabriel R. Bitran
Maureen
WP #3566-93
P.
Lojo
May
1993
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
Framework
for
by
Gabriel R. Bitran
Maureen
WP #3566-93
P.
Lojo
May
1993
A Framework
for
Abstract
We
of firms
engaged in providing
services, synthesizing
First,
we summarize the
manufactured goods.
We
definition
and
to
those in traditional
is
internal
management
The
We
discuss
of
L Introduction
The
fallen dramatically.
total
Furthermore, service
and
differentiate
that do not view providing service as part of their strategy. In this paper,
we develop
service operations.
management
There
is
and we use
in creating a unified
this
work as
framework.
We
begin by
partitioning the context in which a firm operates into three segments: the
We
These characteristics
will
we
be our
discuss
EL
The Framework
It is
environments
to
framework. 2 Although
it
all
we address according
to the
operations.
Compeiitive
Analysis
Financial
Analysis
Manufacturing
Management
Marketing
Backroom
Packaging
Information
f
Customer
External
Internal
Environment
Environment
The tasks
of
is
management
environment consist of
(strategy-related).
it
from similar
to
is
not present,
demand
is
human
planning
control.
Smoothing
The
to the customer.
it is
interface is the
segment
shape
is
in
known
as the
is
delivered
"moment
of truth;"
customer's
managers
and
service quality are key tasks in the service encounter. This necessitates
special attention to training
Because
this is the
managers,
it will
most
and issues
critical
of power, control
environment
and
respect.
to this
paper.^
management
firms? As
it
of such operations
is:
How
different
is
the
same
for
also
more
some
of the
The
or less relevant.
following attributes of services suggest the need for different skills in the
management
We
discuss each of
these in turn.
A. Intangibility
In contrast to manufacturers, service firms usually
sell
bundles of
goods and services, composed of both physical items and intangibles that
are both explicit (having sensual benefits) and implicit (having
psychological benefits).
difficult to
They
it
satisfy
satisfaction,
Of course, these
goods.
consumption of tangible
purchases.
From
to
it is
how
"We do
it all for
it
your way." At
to
fries (chips)
deUvered in a large
number
if
it
away from
the
same
will overflow
present bag size gives the consumers a sense of abundance and they start
eating the fries before reaching their table.
is
importance of shaping
illustrates the
"
The
basic idea
is
not
is
visible
square,
is visible
is
facts,
Wendy's campaign
to the
companies by the physics and chemistry of tangible goods, they have more
degrees of freedom
Success in services
is
Appropriability
difficult to obtain
makes
it difficult
for
and
protect.
The
it is
first airline
it
to
own and
as well.
its
When
a firm introduces a
new
introduces a
new
whenever an institution
it
often introduce
to assess the
important
to
introduced.
A
to copy.
new product
introduction, therefore,
it
better alternative
much more
is to
difficult for
is
is
have very
rigid information
new
when
its
"soft"
may be
very
may
is
one
first
it is
same
services.
An example
service.
One
of
competitors rushed to offer the same thing, but could not charge for the
new
Therefore,
it is
months
important
to
later,
when
its billing
its
is flexible
and
competitors.
Materialization
served.
Examples
practice.
Insurance
make
is
the need
abundant in
Company
of
its
is
to
convey
around
to the
Similarly,
also find
financially solid
and
will be
In hotels
is
many
as
symbol
to
suggest protection.
a hotel room
is
used
is
no other purpose
toilet seat in
toilet
its
The
reassure the
to
for
it.
rooms
to
convey
that everything
to
the customer
is right.
Have
"I
a good night."
came
to
make
sure
name
of the person
was
who
is
correct,
control.
to
for
when they
we expect the
Consider a
plumbing and
electrical
If the
may
may
sell
company
not
may
feel
company may be
a victim of its
services.
own outstanding
To avoid
this situation,
it is
is
making customers
The
firm
personnel
One
whenever
preventive maintenance.
their
It
then
reports to the customer not only the results of the preventive maintenance
environment in those
to obtain
facilities.
The
unexpected
additional value from their visits and bring the customer's attention to their
presence in the
facilities.
attach to a replacement button for one that was missing from a shirt, and
the instructions that lawn care personnel leave after applying a fertilizer or
pesticide.
R Perishability
The
fact that
life
means that
for a
wide variety of
demand and
forecast errors.
to
absorb fluctuations in
sense.
in the traditional
faced with situations in which their facilities and other assets are idle for
is
may
tourist season.
to
stand half
be idle during
morning hours.
Managers
mechanisms
to solve the
have
to
turn to special
some sense,
to
deli
peak
Similarly, pre-packaged
wants
In
If
a customer
wait in line for a clerk, he can simply pick up a package that was prepared
earlier in the
also be used to
customers need
slack.
services.
who
to receiving service.
By providing
is
the service counter and extending the capacity of the available servers.
season
(to attract
subway
10
or
The matching
hours.
and demand
of supply
is
we
critical
will discuss it
environment.
C. Heterogeneity
delivered by
human
their behavior
it is still
fairly
common
to
encounter services
beings.
and therefore
in their delivery
for services to be
be inconsistent in
to
and consumption of
services.
This fact creates a major challenge for the manager of quality in service
firms.
prepared
to deal
will
organizational support.
something
satisfying.
to
add excitement
The training
(attrition) is
shift,
need
their jobs
and
more
their turnover
reduce costs and ensure more consistent service, the firm instituted a set of
raffles.
raffle ticket
room found by
per
shift,
plus an additional
inspectors. At the
some other
program
to a three
month
11
personnel selection, Seibu trains their future servers for forty days on
how
to deal
specific
will serve.
is
flexibility to
customize services
is
also
D. Simultaneity
Many
even recorded
and
all
it is
how
it
may
to
be
for learning
of
consumed by the
manager
is
We
it)
must go
to
come
The customer
effect.
to
often needs to
and home
is
involved in both instances, implying a waste of time for either the customer
or the server.
facilities
This
may
may
12
Hence, in order
to
costs
scale.
many
The
locations,
latter can
still
which increases
be exploited,
individual facilities.
Century 21
which
offers a
An example
is
the
management umbrella
for
geographically.
name
customers
all
Franchising
is
common
is
available to
management system.
Technology
many
services.
is
an
issue.
In fact, there
is
must be immediately
fully
available, necessitating
by technological innovations.
still
such transactions.
needs
to
for accurate
Any
and
necessary data
all face-to-face
13
E. Transferability
to
have more in
many
similar elements
among
other than
common
features of standing
up.
The
level of
personal contact between the customer and employee and the length of time
of, for
it is
is
very
little
Beyond the
is
not
The
distinction
being purchased
difficult to
is
comparable.
is
tennis racket shapes to some extent his expectations and perceptions of the
car-bu)dng experience.
difference
It is
to
be sensitive to this
14
but
monitor new developments not only in their own industry, but also in other
service industries.
F. Cultural Specificity
The
itself.
is
may
exist
between their cultural orientations can either enhance or detract from the
For example, "good service" in restaurants in the
service encounter.
northeast region of the U.S. means keeping a formal distance between the
waitpeople and the customers. However, in the south, servers tend to be
friendly.
who may
such behavior
feel that
shared culture
is
intrusive.
to
non-natives,
is
based
is
countries.
experience depends on
how prepared
differences.
less pleasurable
are anticipated.
The
is
may
the clothing
company
L.L.
excellent reputation in
satisfied.
15
to deliver
the
same kind
They have a
and
to
return an item
to
is
must be addressed
cultural differences
than Americans.
and culturally
managers
and requires
in service firms
We
will focus
in
different
manufacturing
IV.
historic
and cultural
developments. Due
issues.
setting,
economic and
to lack of space,
we
will
definition
It is closely
and
related to the
social trends,
and technological
Workforce 2000. 6
A. Product Definition
it
to justify
will provide
16
will
market
customers with
assure a
profit.''
We
use the term product for both services and manufactured goods. At times
the line between the two can be a bit hazy because
sell
many
services include
manufactured goods
all
actually the service of selling, not the goods that are sold.
is
of additional features.
What
is
the
is
buy a bundle
of goods
Generic
Product
Expected
Product
Augmented
Product
Potential
Product
When
a customer
17
core service
is to
its
company
will
be easy
to contact,
latter are
customers expect
complementary features
to receive
may
them as part
making
their employees
for,
it
expanded
its effort
its definition
to
any
It is
On
of their purchase.
to the core
sort of
By
Dynamic Cycle
The concept
one.
Once
all
of core products
is
a dynamic
expectations are redefined and the complements become part of the core.
to
to introduce
dynamic
new
Over time,
this
overall business.
retail
industry
18
it
necessary
better
known brands
facilities.
of products,
more
service,
to attract
customers by
They did
so
by offering
Facilitating Services
Facilitating services are a subset of
facilitate the sale of the core service.
all
make
of pizza,
may
revenue, although
it
was
is.
trains.
These
to be conscious of
on
flight reservation
its
ticket sales
from
and
it
facilitating services
what the
core service
is,
may
be diverted
important
It is
facilitating service
to offer
to their
when
it
customers as an additional
their
classrooms were not fully utilized, the head of training (who was
responsible for paying rent on the rooms) decided to offer their courses to
evaluated as
to
etc.,
and
19
B. DifFerentiation
A company
its
fifth floor of
Coke
at
a building
Everything can be
may
find
For example,
it
worthwhile
first floor to
how
the
is
is
buy one
to
pay
floor,
small
availability, delivery,
selling
(i.e.,
ready
Making
to eat) differentiates
them
all
to
hours of
Gas
stations
credit cards
it is
quite
common
for differentiation
for celebrities to
based on other
appear in advertisements,
20
who
admire them
to
new members.
to attract
itself.
Similarly,
all
this strategy
and
services,
can be differentiated because customers purchase much more than the core
product.
C.
Market Segmentation
Discovering what customers want and need
are so diverse.
to clearly define
what they
it is
offer, to
main customer
their
is.
because they
who
is difficult
clear
at
what
price, etc.
offer
and
across their thousands of outlets assures customers that they are not likely
to
experience any major surprises in the package of goods and services that
they purchase. In this way, customers will not be disappointed since their
expectations are easily set close to the offerings of the company.
to
members on
to
a regular
members
same
set of
hotel.
pay different
importance
prices.
They
to the hotel at
also represent
21
to
maximize
annual
their
profit
segment where
for
An
them.
Jersey.
It
to devise
procedures that
how
to
illustration
is
their needs,
make
it
clear to each
where they
for
New
business
rooms and a
it is
In this
visible to other
its facilities to
service
and products
premium
segment
for
received.
Of
so represent
pay a
an important
It
marketing
efforts.
segmentation
is
is
customer at
of central importance.
D. Competitive Forces
It is
environment.
It is
do.
22
It
also
substitutes.
different
offer
market
COMPETmVE ENVIRONMENT
Fi ^re 3
and General
Electric
depend on economies of
having multiple
to
entry
may
facilities.
may
The
critical
it.
For
unnoticed by imitators
who might
But
more
tasteful colors
Introduction of
New
Services
it is
is
useful to
adds
the
to
new
it
Examples
of
24
in
Figure
new
services.
service
'high'
As
change over
forces is a
illustrated in
and
'low'
on each
matrix divides products into four groups with varying levels of potential
success. 11
OBSTACLES
Hi
to selling or using
education
competition
price
disruption of power
switching costs/
established
Hare
base
relationshps
sophistication of user
vested interests
distribution
Lo
The preferred
"
is
in the
A company
An
can ride the wave, enjoying widespread appeal and high demand.
example
is
The
obstacles to purchasing and using phone service are very low, yet the value
added
is
extremely high.
named
products in the high value added, high obstacles box will have limited
demand because
product.
is
is
appeal
Home banking
move
is
wave
now
its
low value added and low obstacles make growth slow and conservative, but
lead to success in the long run.
an example of
name
is
rather weak,
The
last
box
is
mired in quicksand.
New
may
flounder as
if
frequently begin in this box, and gradually shift to other locations on the
matrix.
Automated
teller
They were
26
initially
motivated by
all
bank customers.
whom
size
the product
must be
reflects
sold.
competitive position.
In
summary, the
service firm
We now
it is
turn
to
it.
prosper.
V.
The
to
segment
manage
its
Internal Environment
The
internal environment
all
is
and
life cycle,
It is closely
and values,
human and
capital).
those in traditional
management
issues similar to
of manufacturing operations.
Major
and
A.
System Design
Designing a system for service operations entails planning
specifications,
27
flow,
for effective
operations control
is
firm's
common understanding
and
efficiency,
to investigate
but
"Traceable"
The
it,
and
"soft"
technologies
is
very important
changing
opportunities.
new
It is
it
to
technologies as they
may
infrastructure that
is difficult for
and
and
soft
prompt
By combining hard
all
of the
28
patterns,
In designing individual
performed
to
very beginning.
will
scale.
McDonald's
is
down
Their
to the
worldwide.
Required
skill levels
employees
is critical
in service firms.
example of a
Management (TQM)
is
an
will be of
By empowering employees
to
improve procedures,
TQM
taps
B.
The
perishability of services
makes
it
If
they are not consumed immediately, the barber will be idle or the seat on
the plane will be empty, and there
is
no way
29
that
unused capacity.
this.
If
there
seasonal
is
demand
it is
it
for a
perishable.
is
demand
is
in service operations
Adjusting Supply
for
when demand
is
highly variable.
full-time
summer
to
Floating staff and cross training should be instituted in firms where the
demand
for
is
variable.
move between
stations as
demand
shifts
between these
stores.
demand
is
frequently
full-time
30
that
services.
in short shifts
teller
homes
to process transactions
to
over night.
to attract elderly
in
people
who have
the
left
full-
time work force, but miss the stimulation of belonging to a work group.
demand
cycles.
facilities is
is
an obvious place
to start.
generally considered
accommodate varying
labor supply to
test runs
during
off-
facilities
and down
to
When
up
to
is
limited space is
Computer programmers
often enjoy this option. Hotels can adjust their supply of rooms by
to
for low-priced
accommodations.
Extending business hours
many
is
facilities.
Access
when
it is
is
customers could
visit
31
hours of 10am
to
in business.
It is
extremely
common
for
for
whom
companies
to
the banks
be in business
is
key.
Smoothing Demand
Demand
"peak")
manager
clumps (the
off-
when
is
is
What can
a telecommunications manager do
are extremely
common
utilities, hotels,
and
telecommuni-
for
demand by
One response
adjusting prices.
is to
try
Pricing strategies
airlines.
demand,
to foster off-peak
not help firms that face daily peaks and troughs in demand, targeted
to
demand
commuters use
32
After Christmas,
when
many consumers
demand by
activity.
mailings.
Special services can also be offered to attract ofT-peak customers. For
instance,
to attract
non-working mothers by
services
during off-peak hours only, such as free popcorn during weekday movie
matinees, or free parking at stores on weekends and evenings. Volume
discounts are an additional
school children
seniors
fill
fill
means
to
Groups of
dawn during
graduation.
demand. When
its limit,
utilization of their
to
smooth
system.
call
feel less
demand
for the
annoyance than
if their
is
through pre-arranged
for
33
to be
One
in
managing a
efficiency, flexibility,
demand. Managers must address these needs with careful planning and
attention to changing conditions. Service quality
is
itself,
we
will include
it
it is
closely
cinicial
in our discussion of
VL The
Interface
The customer
interface
is
it
now
let
us
It is
34
as on
how
to interact
Conclusion
VIJ.
In this paper,
we presented
managers
Many
Acknowledgments
We gratefully acknowledge
Shibley,
the insightful
See for example: R.K. Shelp, The Service Economy Gets No Respect, Across
Feb 1984.
^
the Board,
Encounters, European
'^
The
first
Wyckoff,
Management
Journal,
for
Analyzing Service
Dec 1993.
Management
Francisco,
A Framework
Publishers,
San
1985.
Hudson
Institute,
^ Poner, M.E.,
8 Levitt, T.,
9
cit.,
1980.
35
Additional
Managing
in
J.L.,
the Service
1986.
McClain, J.O., Thomas,
and Services, Prentice
L.J.,
N.J.,
Hall,
Mazzola,
J.B.,
Englewood
Cliffs, N.J.,
Inwin,
Boston,
N.J.,
1991.
1973.
Lovelock, C.H., Sen/ices Marketing, Prentice Hall, Englewood
Fitzsimnnons,
York, 1982.
J. A.,
i+
I
lO
^
36
Cliffs,
MIT
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