Distinctive Characteristics of Service Operations
In services, a distinction must be made between inputs and resources. For services,
inputs are the customers themselves, and resources are the facilitating goods,
employee labor, and capital at the command of the service manager. Thus, to
function, the service system must interact with the customers as participants in the
service process. Because customers typically arrive at their own discretion and with
unique demands on the service system, matching service capacity with demand is a
challenge.
For some services, such as banking, however, the focus of activity is on processing
information instead of people. In these situations, information technology, such as
electronic funds transfer, can be substituted for physically depositing a payroll check;
thus, the presence of the customer at the batik is unnecessary. Such exceptions will
be noted as we discuss the distinctive characteristics of service operations. It should
be noted here that many of the unique characteristics of services, such as customer
participation and perishability, are interrelated.
Customer Participation in the Service Process
The presence of the customer as a participant in the service process requires an
attention to facility design that is not found in traditional manufacturing operations.
That auto- mobiles are made in a hot, dirty, noisy factory is of no concern to the
eventual buyers because they first see the product in the pleasant surroundings of a
dealer’s showroom. The presence of the customer on-site requires attention to the
physical surroundings of the service facility that is not necessary for the factory. For
the customer, service is an experience occurring in the front office of the service
facility, and the quality of service is enhanced if the service facility is designed from
the customer’s perspective. Attention to interior decorating, furnishings, layout, noise,
and even color can influence the customer’s perception of the service. Compare the
feelings invoked by picturing yourself in a stereotypical bus station with those
produced by imagining yourself in an airline terminal. Of course, passengers are not
allowed in the terminal’s back office (e.g., the luggage-handling area), which is
operated in a factory-like environment. However, some innovative services have
opened the back office to public scrutiny to promote confidence in the service (e.g.,
some restaurants provide a view into the kitchen, some auto repair bays can be
observed through windows in the waiting area). An important consideration in
providing a service is the realization that the customer can play an active part in the
process. A few examples will illustrate that the knowledge, experience, motivation,
and even honesty of the customer all directly affect the performance of the service
system:
1. The popularity of supermarkets and discount stores is predicated on the idea
that customers are willing to assume an active role in the retailing process.
2. The accuracy of a patient’s medical record can greatly influence the
effectiveness of the attending physician.
3. The education of a student is determined largely by the student’s own effort
and contributions.
This strategy is best illustrated by the fast-food restaurants that have significantly
reduced the typical number of serving and cleaning personnel. The customer not only
places the order directly from a limited menu but also is expected to clear the table
after the meal. Naturally, the customer expects faster service and less expensive
meals to compensate for these inputs, but the service provider benefits in many
subtle ways. First, there are fewer personnel who require supervision and such
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things as fringe benefits. Second, and more importantly, the customer provides the
labor just at the moment it is required; thus, service capacity varies more directly with
demand rather than being fixed by the size of the employed staff. The customer acts
like a temporary employee, arriving just when needed to perform duties to augment
the work of the service staff.
This strategy has received great acceptance in a society, such as the United States,
where self-reliance is valued. Instead of being a passive buyer, the customer
becomes a contributor to the gross national product.
Taking the customer out of the process, however, is becoming a common practice.
Consider retail banking, in which customers are encouraged to use telephone or
computer transactions, direct deposit, and automatic-debit bill paying instead of
actually traveling to the bank. Moreover, the advent of Internet commerce gives new
meaning to the phrase “window shopping.”
Simultaneity
The fact that services are created and consumed simultaneously and, thus, cannot
be stored is a critical feature in the management of services. This inability to
inventory services precludes using the traditional manufacturing strategy of relying on
inventory as a buffer to absorb fluctuations in demand. An inventory of finished goods
serves as a convenient system boundary for a manufacturer, separating the internal
operations of planning and control from the external environment. Thus, the
manufacturing facility can be operated at a constant level of output that is most
efficient. The factory is operated as a closed system, with inventory decoupling the
productive system from customer demand. Services, however, operate as open
systems, with the full impact of demand variations being transmitted to the system.
Inventory also can be used to decouple the stages in a manufacturing process. For
services, the decoupling is achieved through customer waiting. Inventory control is a
major issue in manufacturing operations, whereas in services, the corresponding
problem is customer waiting, or “queuing.” The problems of selecting service
capacity, facility utilization, and use of idle time all are balanced against customer
waiting time.
The simultaneous production and consumption in services also eliminates many
opportunities for quality-control intervention. A product can be inspected before
delivery, but services must rely on other measures to ensure the quality of services
delivered.
Perishability
A service is a perishable commodity. Consider an empty airline seat, an unoccupied
hospital or hotel room, or an hour without a patient in the day of a dentist. In each
case, a lost opportunity has occurred. Because a service cannot be stored, it is lost
forever when not used. The full utilization of service capacity becomes a
management challenge, because customer demand exhibits considerable variation
and building inventory to absorb these fluctuations is not an option.
Consumer demand for services typically exhibits very cyclic behavior over short
periods of time, with considerable variation between the peaks and valleys. The
custom of eating lunch between noon and 1 P.M. places a burden on restaurants to
accommodate the noon rush. The practice of day-end mailing by businesses
contributes to the fact that 60 percent of all letters are received at the post office
between 4 and 8 P.M.1 The demand for emergency medical service in Los Angeles
was found to vary from a low of 0.5 call per hour at 6A.M. to a peak of 3.5 calls per
hour at 6P.M.2 This peak-to-valley ratio of 7 to I also was true for fire alarms during
an average day in New York City.3
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For recreational and transportation services, seasonal variation in demand creates
surges in activity. As many students know, flights home are often booked months in
advance of spring break and the Christmas holiday.
Faced with variable demand and a time-perishable capacity to provide the service,
the manager has three basic options:
1. Smooth demand by:
a. Using reservations or appointments.
b. Using price incentives (e.g., giving telephone discounts for evening
and weekend calls).
c. Demarketing peak times (e.g., advertising to shop early and avoid the
Christmas rush).
2. Adjust service capacity by:
a. Using part-time help during peak hours.
b. Scheduling work shifts to vary workforce needs according to demand
(e.g., telephone companies staff their operators to match call
demand).
c. Increasing the customer self-service content of the service.
3. Allow customers to wait.
The last option can be viewed as a passive contribution to the service process that
carries the risk of losing a dissatisfied customer to a competitor. By waiting, the
customer permits greater utilization of service capacity. The airlines explicitly
recognize this by offering standby passengers a reduced price for their tickets.
Intangibility
Services are ideas and concepts; products are things. Therefore, it follows that
service innovations are not patentable. To secure the benefits of a novel service
concept, the firm must expand extremely rapidly and preempt any competitors.
Franchising has been the vehicle to secure market areas and establish a brand
name. Franchising allows the parent firm to sell its idea to a local entrepreneur, thus
preserving capital while retaining control and reducing risk.
The intangible nature of services also presents a problem for customers. When
buying a product, the customer is able to see it, feel it, and test its performance
before purchase. For a service, however, the customer must rely on the reputation of
the service firm. In many service areas, the government has intervened to guarantee
acceptable service performances. Through the use of registration, licensing, and
regulation, the government can assure consumers that the training and test
performance of some service providers meet certain standards. Thus, we find that
public construction plans must be approved by a registered professional engineer, a
doctor must be licensed to practice medicine, and the telephone company is a
regulated utility. In its efforts to “protect” the consumer, however, the government
may be stifling innovation, raising barriers to entry, and generally reducing
competition.
Heterogeneity
The combination of the intangible nature of services and the customer as a
participant in the service delivery system results in variation of service from customer
to customer. The interaction between customer and employee in services, however,
creates the possibility of a more complete human work experience. In services, work
activity generally is oriented toward people rather than toward things. There are
exceptions, however, for services that process information (e.g., communications) or
customers’ property (e.g., brokerage services). In the limited customer-contact
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service industries, we now see a dramatic reduction in the level of labor
intensiveness through the introduction of information technology.
Even the introduction of automation may strengthen personalization by eliminating
the relatively routine impersonal tasks, thereby permitting increased personal
attention to the remaining work. At the same time, personal attention creates
opportunities for variability in the service that is provided This is not inherently bad
however unless customers perceive a significant variation in quality A customer
expects to be treated fairly and to be given the same service that others receive. The
development of standards and of employee training in proper procedures is the key
to ensuring consistency in the service provided It is rather impractical to monitor the
output of each employee except via customer complaints.
The direct customer—employee contact has implications for service (industrial)
relations as well. Autoworkers with grievances against the firm have been known to
sabotage the product on the assembly line. Presumably, the final inspection will
ensure that any such cars are corrected before delivery. A disgruntled service
employee, how- ever, can do irreparable harm to the organization because the
employee is the firm’s sole contact with customers. Therefore, the service manager
must be concerned about the employees’ attitudes as well as their performance. J.
Willard Marriott, founder of the Marriott Hotel chain, has said, “In the service business
you can’t make happy guests with unhappy employees.”4 Through training and
genuine concern for employee welfare, the organizational goals can be internalized
1. R. C. Cohen, R. McBridge, R. Thornton, and T. White, Letter Mail System
Performance Design: An Analytical Method for Evaluating Candidate Mechanization,
Report R- 168, Institute for Defense Analysis, Washington, D.C., 1970.
2. James A. Fitzsirnmons, “The Use of Spectral Analysis to Validate Planning
Models,” Socio-Economic Planning Sciences, vol. 8, no. 3, June 1974, pp. 123—128.
3. E. H. Blum, Urban Fire Protection: Studies of the New York City Fire Department,
R-681, New York City Rand Institute, New York, January 1971.
4. G. M. Hostage, “Quality Control in a Service Business,” Harvard Business Review,
vol. 53, no. 4, July—August 1975, pp. 98—106.
Source: Fitzsimmonds and Fitzsimmonds, Service Management 4th Edition,
2004, McGraw Hill. (pp21-25),
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