Services Operations Management (SOM)

WMP-Term VI

Dr. S Venkat
QM and OM Area
IIM Lucknow

SOM-WMP S Venkat

Outline

Recap on OM learnings
Introduction and Importance of services
Role of services in economy-Indias GDP
Characteristics of Services
Decision Framework and their importance
Design of services
Automation in Services
Conclusions

SOM-WMP S Venkat

Introduction and importance of

services

Economic issues- Macro level

Survey Article- Omega (2002)
Framework EMJ (1993)
Best Practices- CMR ( 2001)

SOM-WMP S Venkat

Re-cap on OM Topics

SOM-WMP S Venkat

Specific Learnings

What is the role of services in economy?

Which OM problems are the most important for
service organisations?
Elements of service process maps and its
relevance
SOM- Important Ops problems and OM methods
to address them
How to conduct a survey to know the important
problems and remedies?
What kind of survey instruments to use?
What is the acceptance rate for high level
employee surveys?
Role of framework SOM-WMP
and best
practices
S Venkat
5

What are Services?

Material gains- achieved by adding value to

natural resources.
Many org transform input materials to more value
added output (goods) through transformation
process.
Similarly organisations also add value to personal
lives through intangibles (services).
Services can be defined as economic activities
that produce time, place, form or psychological
utilities.
Services are acts, deeds, performances which are
intangibles.
SOM-WMP S Venkat

What are Services?

Time-maid servant (saves consumers time)

Place- supermarket etc (provide many at one place)
Form- useful form to the manager/consumer
(database)
Psychological- Refreshment/movie etc
Services are contrast to goods
Goods are tangibles and can be stored/used later
Services are intangible/perishable and cant be
stored
TV is a good and programme in a TV is a service
Goods are accompanied by facilitating services
Services are accompanied by facilitating goods
SOM-WMP S Venkat

Problems in Service Orgs

http://news.in.msn.com/national/mc
donalds-to-pay-rs-15000-for-delive
ring-wrong-burger-1

McDonald's to pay Rs 15,000 for delivering wrong

burger (Feb 2, 2013)

The order came on the plea of Delhi resident Vimal Chaudhary who had
alleged that she had ordered for two vegetarian burgers, but she was delivered
one non-vegetarian and one vegetarian burger
New Delhi: Fast food giant McDonald's has been directed by a consumer
forum here to pay Rs 15,000 as compensation to one of its customers for
delivering a non-veg burger instead of the vegetarian one she had ordered. The
South West District Consumer Disputes Redressal Forum said, "By delivering
her a non-vegetarian burger instead of the vegetarian burger ordered by her is a
gross negligence on the part of the delivery-crew-member, whose conduct is
tantamount to deficiency-in-service.
SOM-WMP S Venkat

Problems in Service Orgs

"Allowing the complaint, we direct the opposite party (McDonald's) to pay to

the complainant Rs 10,000 as compensation and Rs 5,000 as cost of litigation,"
the bench presided by Narendra Kumar said. The order came on the plea of
Delhi resident Vimal Chaudhary who had alleged that she had ordered for two
vegetarian burgers, but she was delivered one non-vegetarian and one
vegetarian burgers. She had said that she realised it was a non-veg burger only
after eating half of it and thereafter, she had started vomiting. The woman had
also alleged that being an Arya Samaj follower and a Hindu, eating the nonvegetarian food has hurt her emotionally and she also suffered religiously.

In its defence, the McDonald's had contended that the woman had willfully
accepted the non-veg burger instead of the vegetarian one ordered by her. The
forum, however, rejected the contention, saying had she wanted a non-veg
burger she would have ordered one.

SOM-WMP S Venkat

What are the lessons from MD?

Order details Vs actual deliveries (Service
problem)
Dispute resolution mechanism
Cost of penalties
Importance of training for workforce
Customer sensitivity to religious beliefs
Impact of such incidents on overall business and brand
image
Need for continuous improvement or quality mgt
systems (QC Vs QA)
Other examples like US Bank and Indian Bank
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Airline Industry-Innovations
Unbundling services: A new revenue stream for airlines
(May 8, 2013, BL)
Governments decision to unbundle certain services on
domestic flights is good news or bad for flyers.
Learning from developed countries, many airlines,
especially low-cost airlines charges for various services.
List of services: Preferential seat, Meal/snack/drinks,
airline lounges, check in baggage, sports equipment
carriage, musical instruments, special declaration of
valuable baggage
Civil Aviation Ministry studied the airline industry and
its services before unbundling move.
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Airline Industry-Innovations
Revenue stream
Charging for services is seen as a separate revenue
stream for airlines.
Ryanair charges a priority boarding fee of 7-10 (Rs
500-700) and this allows the flyer to be among the first
to board a flight.
AirAsia, plans to charge Rs 90 for a standard seat and
Rs 450 for a hot seat. This allows the flyer priority
boarding and get a comparatively comfortable seat with
more leg space.
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Airline Industry-Innovations
Revenue stream
For sports equipment and musical instruments (20 kg/per
item/one way) Ryanair charges 50-60 (Rs 3,500-4,200).
Checked-in bags will attract the usual charge. The
unbundling in India covers these two categories.
For every first checked-in bag (15 kg) Ryanair charges
15 (about Rs 1,100) if done at the time of booking on
the airlines Web site.
This figure goes up to 60 (Rs 4,200) if the booking is
made through the call centre or if the ticket is purchased
at the airport.
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Airline Industry-Innovations
Revenue stream
For the second checked-in bag (15 kg), the rate ranges
from 105 (Rs 7,500) to 160 (Rs 11,000), depending
on the flight and low/peak season.
American Airlines charges domestic flyers $25 (about
Rs 1,400) for the first checked-in bag and $35 (about Rs
1,900) for the second.

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Airline Industry-Innovations
Commercial decision
DGCA has allowed airlines in India also to start
charging separately for these services.
Air India (is the first one) to reduce the baggage
allowance to 15 kg and setting a fee of Rs 250/kg for
excess weight. This applies from May 13.
British Airlines Example for students
Other airlines are yet to make their minds.
SpiceJet CEO said this will be a commercial
decision which the airline will take at an appropriate
time.
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Airline Industry-Innovations
Fundamental issues on service unbundling
Is it good in Indian context? Yes or No and why?
How many fly by air in India compared to other
countries?
What are the alternate channels for customers?
How these alternate channels are going to evolve?
What will be role of Govt and service providers?
How customers will get the benefit?
What about issues related to customer service like
delays, quality of services, loss/damage of baggage?
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World Economy-An overview

IMF Global Report: 2012

Growth Forecast
US: 2.2%
Japan:
2.2%
17 Country Euro Zone: -0.4%
China: 7.8%
India:
4.9%

World economy is expected to grow at 3.3% this year

Slowest growth in three years and IMF sees weak global recovery as well
This is IMFs second GDP downgrade since April 2012
India GDP forecast to 4.9%, down from a forecast of 6.1% in July.
Rationale behind Indias GDP forecast cut
Waning business confidence, slow approvals for new projects, sluggish structural
reforms, rising current account deficit, depreciating rupee and weak demand.
Monetary policy should stay on hold until a sustained decrease in inflation
materializes.
Reaccelerate infra investment, launch structural reforms and lower subsidies.
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India GDP -Sectoral

* Economic Survey of India 2011-12, Government of India, Ministry of Finance, Economic Division.

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India GDP growth Sectoral

Sector
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Avg Std
Agriculture 5.5 -4.9 8.2 1.1 4.6 4.6 5.5 0.4 1.7 6.8 1.9 3.22 3.66
Manf
2.7 7.1 7.9 10 10.7 12.7 10.3 4.7 8.6 7.4 4.5 7.87 3.02
Trade,
Hotels,
Transport,
10.2
Commn
8.6 8.5 11.1 9.7 12 11.6 10.9 7.5 10.3 11.1 11.2 3 1.46
Fin,
Insurance,
Real Estate
& biz
services
7.1 7.7 5.8 8.7 12.6 14
12
12 9.4 10.4 9.1 9.89 2.55
Public adm
& defence
and other
services
4.1 3.9 5.4 4.9 7.1 2.8 6.9 12.5 12 4.5 5.9 6.36 3.18
Services10.5
10.6 10.5
* Economic Survey
India7.43
2011-12,
Government
India, Ministry
Economic
Comb
6.6 of6.70
7.77
7 9.47of9.93
7
7of Finance,
8.67 8.73
8.83Division.
1.54
Overall
GDP
5.5
4
8.1
7
9.5 9.6 9.3 6.7 8.4 8.4 6.9 7.58 1.76
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India GDP-Growth Sectoral

India's GDP -Sector wise (Source: B L Dec 5, 2012)
GDP at F
NonFY
Agri & Alld Industry Services Cost
Agri
2009
0.4
4.7
10
6.7
8.1
2010
1.7
9.8
10.5
8.4
9.8
2011
6.8
7.4
9.3
8.4
8.6
2012
2.3
3.4
8.9
6.5
7.1
2013
(1H)
2
3.4
7
5.4
5.8
Avg
2.64
5.74
9.14
7.08
7.88

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20

GDP Growth

Restart of GDP growth - future seems to be bright

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GDP growth

GDP growth is strongly driven by service sector & Industry

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GDP growth

Inflation continue to grow

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Banking Sector

NPA stands at 3%,

Competition is very high

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Insurance Sector

Increase in income level

will drive the sector

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IT/ITeS Sector

New opportunities and niche

areas are going to drive the
growth

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Retail Sector

Customer Service is utmost concern for the players

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Macro Level factors/Issues

Is service sector growth sustainable? (Azim Premji)
Govt Policy related issues- governance structure
Tax structure and uniform implementation of policy
across states
Infrastructure support for service delivery
Adequacy of skilled workforce
Support of FIs and subsidies
Highly fragmented sector (though Sunrising industry)

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Design of Services
Characteristics
Frameworks
Best practices

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Nature of Services
Seven major aspects (Colours)
1. Everyone is an expert on services
2. Services are idiosyncratic (what works well in
one case may be disastrous in another case)
3. Quality of work is not quality of service- Ex.
Completing a repair in one day instead of an
hr
4. Most services contain a mix of tangible and
intangible attributes that constitute a service
package- pure service does not exist
5. High-contact services are experienced,
whereas goods are consumed
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Nature of Services
6. Effective management of services requires
an understanding of marketing and
personnel, as well as operations
7. Services often take the form of cycles of
encounters involving face-to-face, phone,
Internet, electromechanical, and/or mail
interactions

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Characteristics of Services
Intangibility- legal advise, classroom training, special
show tickets etc. Services are performances and actions
rather than objects, therefore having poor tangibility.
Inseparability-service cant be stored or inventoried as in
the case of manufactured products an degree of customer
contact is very high
Perishability- simultaneous production and consumption.
Variability- outcome of service depends on amount of
interaction and mode of interaction etc. Heterogeneity
leads to high variability in the system performance
Service system- operations sys, mrkt sys, service, delivery
sys, service personnel
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Characteristics of Services
Intangibility- Expectations and perceptions,
appropriability, materialisation
Perishability- Services can not be inventoried in
traditional sense (Idle time is costly), managers need
to match demand and supply. Ex preventive
maintenance during low demand time, pre-packaged
goods, filling of forms while waiting in the line,
differential pricing
Heterogeneity-inconsistency in service delivery as
well as customers
Simultaneity- co-production and co-consumption
Transferability customer experience comparison
with non-related service providers (Car and tennis
racket)
Cultural Specificity- culture influences the service
offered (Ex. Restaurants, health care)
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Characteristics of Services
External environment- Customers and competitors
present- Mgrs need to identify customer needs (Mrktg)
and sizing up the opportunity and threats (Strategy)
Strategy (PST- product, segment and target)- Product
definition and differentiation, org culture and leadership
( Ex. Telecom seconds billing), market segmentation,
competitive forces
Internal- Planning and Execution related- Information
packaging, efficiency, resource org and their utilisation,
performance measurement and evaluation. System
design, matching demand and supply
Interface- Execution/delivery of service- Moment of
truth- understand the characteristics of service and
customer (quality, encounters etc)
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Service Manufacturing
Continuum
Pure Product

Pure Service
Ayurvedic Healing Treatment
Legal/Tax Consulting
Cyber Caf Telephone Booths
Emergency Maintenance Services
Facilities Maintenance
High quality restaurant meal
Fast food in a eat out joint
Customised durable goods
Fast moving commodities
Vending Machines

Adopted from Hill, T. (2005), Operations Management (Palgrave Macmillan), 2nd Edition, pp 14.

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Manufacturing & Service

Similarities & Differences
Manufacturing Organizations

Service Organizations
Differences

Physical durable product

Intangible, perishable product

Output can be inventoried

Output cant be inventoried

Low customer contact

High customer contact

Long response time

Short response time

Regional, national, Intl. markets

Local markets

Large facilities

Small facilities

Capital intensive

Labour intensive

Quality easily measured

Quality not easily measured

Similarities

Is concerned about quality, productivity & timely response to its customers

Must make choices about capacity, location, layout
Has suppliers to deal with
Has to plan its operations, schedules and resources
Balance capacity with demand by a careful choice of resources
Has to make an estimate of demand

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Critical Indicators
Time

02/26/16

Cost

SOM-WMP S Venkat

Variability

37

Operations Prob in Service Orgs

As per survey of Service Organisations
Most important problems
Least important problems
Study methodology and uniqueness
Problems and their identification
Problems and implications for educators
SOM-WMP S Venkat

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Operations Prob in Service Orgs

Most important problems
Resource utilisation (18)
Quality of services (15)
Forecasting (5)
Least important problems
Location decisions (1)
Layout decisions (2)
Distribution requirements (21)

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Issues in Service Operations

Based on Organisational context: Service
business and internal services
A service business is the management of
organizations whose primary business
requires interaction with the customer to
produce the service.
Ex. Banks, airlines, hospitals, law firms, retail
stores and restaurants etc.
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Issues in Service Operations

Service business

Facilities-based services:
Where customers go to
service facility
Ex. Po, hospitals, ed inst

Field-based services:
Where the production
and consumption of the
service takes place in
the customers site
Ex. Cleaning, home repair

What is the Role of technology?

Transfer of facility based services to field based services

Ex. Telemarketing, BPO, mobile/online based
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The Service Triangle

AAphilosophical
philosophicalview
view-Similar
-Similarto
toquality
quality
triangle
triangle
Customer
Customerquality
qualityisisthe
thebasis
basis
Organizations
Organizationsexists
existsto
toserve
servethe
the
customer,
customer,the
thesystems
systemsand
andthe
theemployees
employees
exist
existto
tofacilitate
facilitatethe
theprocess
processof
ofservice.
service.
Relation
Relationbetween
betweenorg
org(TM)
(TM)and
and
employee
employeereflect
reflectthe
theservice
serviceto
to
the
thecustomer
customer(TVS
(TVScase)
case)then
then
the
thefocus
focusshifts
shiftsfrom
fromexternal
external
customer
customerto
tointernal
internalemployee
employee
welfare/trg
welfare/trgetc
etc

The
Systems

The Service
Strategy

The
Customer
The
People

In
Inservice
servicetriangle
triangleoperations
operations
play
playaavital
vitalrole,
role,Why?
Why?

SOM-WMP S Venkat

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The Service Triangle

In
In service
service triangle
triangle operations
operations play
play aa vital
vital role,
role,
Why?
Why?
Operations
Operations are
are responsible
responsible for
for performance
performance of
of
service
service system
system
Ex.
Ex. Procedures,
Procedures, equipment,
equipment, facilities,
facilities,
personnel,
personnel, customers
customers etc
etc
Customers
Customers affect
affect the
the operations
operations function
function

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43

Classification of services
Customer affect the time of demand, nature of
service, quality of service etc
Design decision depends on customer contact/
presence
Work done behind scenes is performed on customer
surrogates. Ex.
Reports, databases, invoices,
diagnostic tests etc
This is similar to maximisation of units produced in a
manufacturing system
Diversity in services is due to customer related issues

Ex. Bank- ATM, cash withdrawal, teller services, loan, TT, etc

HCC and LCC in a bank on various design decisions

like facility location, layout, product design etc
HCC systems subject to higher variability unlike LCC
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Mass
Mass and
and professional
professional
service
service firms
firms refers
refers to
to
general
general industry
industry and
and other
other
two
two are
are more
more descriptive
descriptive

Service
Factory

Airlines, trucking
Hotels, Resorts etc

High

Degree
Degree of
of labour
labour intensity
intensity
and
and degree
degree of
of customer
customer
interaction
interaction

Degree of labour intensity

Service
Service firms
firms differ
differ widely
widely
and
and poses
poses different
different
problems.
problems. Clear
Clear demarcation
demarcation
helps
helps in
in addressing
addressing them
them
better.
better.

Low

Service Process matrix (Schmenner, 1986)

Service
Shop

Hospitals,
Auto repair,
Repair services

Retailing, wholesale
Doctors,
Schools, Bank Lawyers, consultants

Mass
Service

Professional
Service

Low

High

Degree o f interaction & Customisation

The
The nature
nature of
of work
work performed
performed should
should be
be the
the basis
basis for
for classification
classification
Routine
Routine and
and knowledge
knowledge work
work has
has been
been widely
widely used
used in
in the
the industry
industry
and
and other
other issue
issue isis integrated
integrated vs
vs decoupled
decoupled tasks-specifies
tasks-specifies how
how
service
SOM-WMP
for
S Venkat
45
service isis delivered
delivered and
and useful
useful
for improvement
improvement

Dept stores, hotels

Airlines, insurance

Decoupled

Service delivery

Fast food rest,

Car rentals etc

Service
Store(SSt)

Service
Shop(SSh)

Auto repair
Personal services
Profesl services

Hospitals,
large clinics, adv
Inv banks

Service
Complex(SC)

Knowledge
Routinised
Service task/process

This
Thisisissimple
simpleto
tounderstand.
understand.Considers
Considerssize
sizeand
andscope
scopeof
ofservices
services
delivered,
delivered,improvement
improvementcan
canbe
beachieved
achievedthrough
throughSERVQUAL
SERVQUALattributesattributestangibles,
tangibles,reliability,
reliability,responsiveness,
responsiveness,assurance
assuranceand
andempathy
empathy
SOM-WMP S Venkat

Profel services

SFSF-routine
routineprocesses,
processes,tightly
tightly
integrated
integratedinindelivery
delivery
SSt-variety
SSt-varietyof
ofroutine
routineservices,
services,
decoupled
decoupled
SSh-non-routine
SSh-non-routineknowledge/
knowledge/craft
craft
work,
work,closely
closelyintegrated
integratedinin
delivery
delivery
SCSC-delivering
deliveringdecoupled,
decoupled,nonnonroutine
routineknowledge
knowledgework
work

Service
Factory(SF)

Mass services

Characteristics
Characteristics
Problems
Problems
Improvement
Improvement steps
steps
Transition
Transition relationship
relationship

Integrated

Types of service businesses (Davis, 1999)

46

Types of service businesses (Davis, 1999)

Characteristics;
Characteristics; Problems;
Problems; Improvement
Improvement steps
steps and
and Transition
Transition rel
rel

SF: Chrs-m/c like opns, Simple, std servs, commodity, follow

same linear flow, minor variations,easy to price, value chain is
same in all locations, less flexible, high conformity, replicability

Prob: design of operating system, less flexible, managing growth

is difficult, tedious, repetitive nature and variability, worker
absenteeism, easy disapproval of customer

Imprv: OS must be effective and efficient, reliable quality, price

and speed are core assembly line methods are used for improving
quality and efficiency for recurring services, work study and time
study tools are used, closer to manf org, competitive adv is due to
SOP.
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Types of service businesses (Davis, 1999)

Characteristics;
Characteristics; Problems;
Problems; Improvement
Improvement steps
steps and
and Transition
Transition rel
rel

SSt: Chrs-less specialised, more diversified and larger than SF and

perform broader range of services delivered by many at different places
and times. Work is unbundled/extensive, more variety and fragmented
and more variable, more encounters, service tasks may be independent
or interdependent, more difficult thing is coordination, work is
regulated by policies than SOP, centralised buying and inventory
control and customised to local needs (Central planning and local
execution)- self service is predominant
Ex. Large retail stores, dept stores, hotels, airlines, insurance cos,
Prob: Due to different locations and fragmentation no total
responsibility or accountability, customers can react fast for quality
problems, difficult to assign costs to services, Value chain for different
services is difficult, shared cost structure, adopt low prices as strategy,
uses large number of PT employees, use of IT is high
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Behavioral Science to Service Encounters

Managers in service firms need to understand
customer perceptions and technical features of
service processes. Customer perception depends on
three aspects via, the flow of service experience, the
flow of time and encounter performance

The front-end and back-end of the encounter are

not created equal
Segment the pleasure, combine the pain
Let the customer control the process
Pay attention to norms and rituals
People are easier to blame than systems
Let the punishment fit the crime in service recovery
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Designing service org, systems and services

Design of
Service organisation
Service system
Service (approaches- production line, self
service, personal attention)
Service delivery design
Design drivers- service guarantees

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Service design factors

Location
Layout
Product-process design
Features
Customer contact
Standardization
industrialization
Resources: workers, technology, etc.
Management: Quality, capacity, standards, etc.

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Service Development Cycle

Planning Stage

Execution Stage
Full Launch

People

Design

Products
Technology

Systems

Development

Analysis

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Planning for Service

LEVEL OF
PLANNING

MANUFACTURING
FIRMS

SERVICE FIRMS

Aggregate
planning

Translate strategic
decisions into productive
capacity. ( 1-3 years)

Translate strategic
decisions into
technology & resource
planning. ( 1-3 years)

Disaggregate
planning

1.Decisions on individual
product lines.
2. Disaggregated facilities
decision. ( 1 y ahead )

1.Decisions on basic
service design. 2.
Capacity management
decisions. ( 1 y ahead)

Scheduling

1.Production vs. capacity.

2.Inventory
3.Priority decisions

Assignment of
individual work

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Automation in Services
Example
Airlines air traffic control, passenger reservation
Banks ATMs, computerized bank statements
Gas Stations automated payment (pay-at-the-pump)
Health Care MRI system, AGVS for waste disposal
Grocery Store self-service checkout stations
Real Estate web based house-for-sale tour video
Vending machines

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Automation in Services

Trend developing toward more-standardized

services and less customer contact.
Service standardization brings trade-offs:
- Service not custom-designed for each customer
+ Price of service reduced, or at least contained

Banking industry is becoming increasingly

automated
Service firm can have a manual/automated mix:
Manual - front room operations
Automated - back room operations
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Degree of Customer Contact in Services

and the Use of Automated Equipment
Degree of
Customer Contact
Manual Operations

High

Mechanized Operations
Automated
Operations
Low
Low

High
SOM-WMP S Venkat

Capital
Intensity
56

Best Practices
Lesson 1: Base decisions on what the customer wants and
expects
Ex. customer business not furniture business, customer
experience focus, SW airlines-low fares, on-time, friendly
service
Mgrs need to identify key drivers of Customer satisfaction
Lesson 2: Think and act in terms of the entire customer
experience- what, where and how of customer experienceAirlines missed flight example
Lesson 3: Continuously improve all parts of the customer
experience
Lesson 4: Hire and reward people who can effectively build
relationships with customers(Ex.Taj palace customer safety)
Lesson 5: Train employees in how to cope with emotional
labour cost- do the job consistently
SOM-WMP S Venkat for each customer. 57

Best Practices
Lesson 6: Create and sustain a strong service culture
Truly guest focused- helps guide the employee, gives
meaning and value to the work, it helps to fill the gaps
Lesson 7: Avoid failing your customer twice- focus on cost
of failure
Lesson 8: Empower customers to co-produce their own
experience- customers as quasi employees
Lesson 9: Get managers to lead from the front, not the top
Examples- Marriot owner, Automobile Company
Lesson 10: Treat all customers as if they were guests- call
them as guests instead of customers.
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Conclusions
Services are characterised by different
dimensions and needs special approaches
Highly varies, intangible, perishable
Data from the University of Michigan's survey
of customer satisfaction show that services
are getting worse.
In other words, the apparent common sense
underlying these lessons isn't common.
While the principles may seem simple, they
are hard to follow on a consistent basis by
everyone throughout the organization.
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Discussion
Thank you

02/26/16

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