Service Operations Management

An increasing number of businesses are offering services rather than tangible goods. Although customers' opinions of service quality are directly related to a company's profitability, many organizations fail to control and improve their customer service processes. These processes tend to be difficult and costly to control because of their intangibility, heterogeneity, and inseparability. However, operations management principles can be applied to service industries in an effort to improve quality. One must first understand what the customer wants from the customer service process and then identify fail points in the process where it is likely to go wrong. No matter how well the customer service process is designed and implemented, problems are unavoidable. Customer dissatisfaction as a result of errors, however, is not. There are a number of ways to recover from customer service problems and maintain customer loyalty.

Keywords Fail Point; Flow Chart; Operations Management; Service Sector; Strategic Planning

Operations & Information Systems > Service Operations Management

Overview

As the state-of-the-art 21st century technology continues to expand and high tech solutions proliferate, more and more businesses offer services instead of, or in addition to, tangible products. In fact, the service industry is the largest and fastest growing business sector in the United States. Despite the opportunities offered by this growing sector, however, businesses are faced with the problem of determining how to manage operations where the products are intangible. As a result, research has found that most consumers are dissatisfied with the customer service they receive from these businesses. This fact, combined with the increasing service competition that arises out of the growing trend toward globalization, means that increased emphasis needs to be placed on operations management in service organizations just as it is in manufacturing organizations.

Operations Management & the Service Sector

Operations management comprises those areas of management that are concerned with productivity, quality, and cost in the operations function (i.e., those activities necessary to transform inputs such as business transactions and information into outputs such as completed transactions) as well as strategic planning for the organization. The service sector has been described in many ways. In its essence, the service sector includes those industries and businesses that provide services rather than tangible products for individual consumers, businesses, or a combination of the two. These can include physical, mental, or aesthetic activities (e.g., legal services, entertainment, auto repair) or the transformation of something through such an activity (e.g., hair cutting, education, management consulting).

Like defining the service sector itself, defining operations management for the service sector is more problematic than defining operations management for other sectors (i.e., transportation, communications, and utilities; wholesale or retail trade; finance, insurance, and real estate; public administration). It is relatively easy to determine when a widget is not of acceptable quality. The manufacturer will have a manufacturing specification that describes what the tolerances are for the product and quality control will accept or reject the product based on whether or not it is within the specifications. Similarly, a manufacturing process can be evaluated to see where there is waste in the process or where efficiencies can be introduced. However, it is not so obvious where to improve quality or cost-effectiveness for service industries. For example, how does one specify the quality of a new hairstyle? Although in some cases a bad haircut can be obvious to all, a new hairstyle may be a matter of aesthetics: What looked good in the magazine on the 20 year-old model may not look so good on the middle-aged customer with a different bone structure. Similarly, how does one evaluate the cost of creating a new work of art or the training of a hotel employee? Yet, the quality of customer service must be operationally defined in order for the organization to be consistently effective.

Quality Improvement & Control

Despite the fact that research has shown that customers' opinions of service quality are directly related to company profitability, many service organizations do not try to control and improve quality. This is due in part to the fact that service quality is often difficult and costly to control and improve. It is also due to the differences between the activities and products of the service industry and those of the manufacturing industry. In manufacturing, results are tangible and can be quantified. This fact makes it easier to control quality than in the service industry where the "product" is intangible. Further, in manufacturing, statistical quality control methods can be built into the process so that quality is monitored and corrected at several key points in the process. In most manufacturing processes, there are typically several points at which the product can be quality tested so that substandard parts or products can be rejected or the process can be rectified as necessary before the products reach the consumer. This approach, however, is not possible in the service industry: One cannot do a quality control check on services before they reach the customer.

Three Reasons for Control Difficulties

There are three reasons that services are difficult to control: intangibility, heterogeneity, and inseparability. The quality of customer service is not based on a product that one can touch. Characteristics of good customer service more often have to do with speed of delivery of the service, the competence with which the service is delivered, and the courtesy with which it is offered. Such factors are difficult to quantify for a number of reasons, not the least of which is the perceptions and expectations of the customer. It can be difficult to operationally define good customer service. For example, does walking the customer through a troubleshooting procedure step-by-step in an attempt to be thorough constitute good customer service, or does listening to the customer in an attempt to find out what s/he has already tried constitute good customer service? The former situation is apt to antagonize someone who is knowledgeable about the process while the latter approach is likely to miss important steps with a customer who only thinks s/he is knowledgeable. In some situations, there are, of course, some aspects of customer service that are tangible (e.g., receiving starter checks when opening a new bank account). However, these tend to be much poorer predictors of customer satisfaction than are the intangible factors.

Factors that Affect Quality of Service

In addition to being intangible, services tend to be heterogeneous in nature, and not consistently performed. Quality of service depends on a number of factors, including the personalities and expectations of each of the parties involved. For example, when a technophobe calls a technical support help line to troubleshoot what is wrong with his computer, he expects and needs to be treated with a step-by-step, hand-holding approach that will allow him to trust the person on the other end to walk him through the steps. If an experienced computer programmer calls the technical help line, however, the same step-by-step approach based on the assumption that the customer is clueless is more apt to be irritating than helpful. Similarly, the retail assistant who greets the customer at the door and follows her throughout the shopping experience may be perceived as helpful to some customers and intrusive by other customers. Human nature makes customer service a complicated process. What works with a given customer today (e.g., when the customer wants help) may not work with the same customer tomorrow (e.g., when the customer is in a hurry and does not want to linger over the process).

A third characteristic of customer service is inseparability. Customer service is performed in the presence of the customer and becomes inseparable in the customer's mind from the organization as a whole. So, for example, if a software manufacturing company provides poor customer service to someone logging on to the support database or calling the technical help line, in the customer's mind, the service will be inseparable from the product. Most customers do not differentiate between the quality of the product and the quality of the service. An overview of the dimensions of customer service is given in Table 1.

Table 1: Dimensions of Customer Service (Adapted from Armistead, 1989, p. 249)

Steps to Improving Customer Service

Despite the more nebulous nature of service versus manufacturing, operations management principles can be applied to service industries in an effort to improve quality. The first step in improving customer service is to ascertain whether or not one is offering the service that the customer wants. For example, no matter how good an automated troubleshooting system is, if the customer wants the personalized service of talking to a live person, the automated system will never be sufficient. Another action taken to improve customer service is to improve the service system itself. Various program management techniques including PERT charts and Six Sigma programs can be used in an attempt to regularly assess and ensure quality. However, when dealing with the service industry, these tools tend to miss one of the major components of the system: The customer's interaction with the service.

The Blueprint Method

Once the service for which the customer is looking has been determined, one can next determine how to better provide that service for the customer. One of the ways to overcome this omission is through the "blueprint" method. The various steps part of this method are:

Flowcharting

The first step in the blueprint method is to specify the complete service process in a flow chart. This schematic should distinguish between those operations or activities that are seen by the customer and those that are not. Even though part of the process is not seen by the customer, it still can affect overall customer satisfaction with the service. For example, the computer software used by a credit card company will probably never be seen by the customer. However, if the software prints out credit card statements in a format that the customer finds difficult to decipher, the software will negatively impact customer satisfaction. Similarly, many grocery stores use software to help design the store layout in order to give customers easier access to certain items or to give designated stock a place of prominence for promotional purposes. Although the customer will probably never see that software, either, if s/he has to search for the Nutty Crunchy cereal for the third time in two months, s/he is not likely to be satisfied with the store's customer service.

Determining Fail Points

Once the service process has been flowcharted, the next step in the blueprint method is to analyze it to determine where there are fail points — the critical points in the process where the provider has the opportunity to make a serious mistake that can negatively impact the customer's satisfaction with the process or his/her perception of quality. This allows the provider the opportunity to design fail-safe sub-processes that can be integrated into the overall service process so that potential missteps are caught before they affect the customer's perceptions of the service or the process. The determination and elimination of fail points is one of the most difficult steps in the blueprint process. One of the reasons for this is that it is important to determine the time frame of the fail points since time is an important factor in service cost. However, the more complex the service process, the more difficult it is to pinpoint time frames.

Determining Time Frame

To do this part of the analysis, it can be helpful to first determine how long it takes to perform the process when all aspects of the situation are normal. From a customer's point of view, satisfaction with the process or service decreases in direct relations to the degree to which the process or service takes longer than expected. Once this "ideal" time frame is developed, time frames can be developed for various foreseeable deviations from the normal case. For example, a grocery store could determine the amount of time it should take a checkout clerk to ring up an order with a given number of items. From there, it could be determined how long it would take if one of the items were not marked with the price or the SKU had not been entered into the system. This process could be performed for other deviations from the "ideal" checkout situation such as the use of coupons, the customer not having picked up sufficient items to qualify for a sale price, and so forth.

Profitability Check

Once the ideal and deviation time frames have been determined, the blueprint should next be checked for profitability. This activity involves quantifying the cost of various deviations on profitability. For example, the situation where an item is not entered into the computer means that the transaction needs to be stopped while someone is sent to look for the correct price on the shelves or in the sales flyer. This person needs to return to the checkout line or call the checker with the correct price. This deviation not only affects the time frame for service of the person's order with the undocumented item, but also affects the time frame for service for the people standing in line behind that person.

Use of Technology

In some instances, there are ways to speed up processes or increase efficiency through the use of technology. For example, to help get the customer through to the correct person on a telephone help line, many businesses use an automated telephone answering system. From the organization's point of view, the use of this technology can get customers help in a more timely manner while reducing the number of employees that the organization needs to hire to answer the phones. The automated system can even offer the customer answers to frequently asked questions while they are waiting on hold. However, if from the customer's point of view the answering system is too impersonal or cumbersome, then customer satisfaction decreases and counteracts the efficiencies gained by implementing the system. When dealing with customer service issues, the object of the exercise is not only to increase the efficiency of the process, but to do so while not decreasing the customer's perception of quality.

Applications

No matter how well the customer service process is designed and implemented, errors and problems are unavoidable. Customer dissatisfaction as a result of these things, however, is not. It may be tempting to consider the one complaining customer as an outlier who does not represent customers in general or whose opinion does not reflect badly on the organization's service process. However, such customers should not be dismissed. Such customers typically represent a silent number of other customers who did not bother to complain. In addition, according to industry experts, it costs five times more to replace a customer than to retain one. Therefore, customer satisfaction is important to the success of the business.

At virtually every fail point, there is a concomitant opportunity for recovery. To take advantage of these opportunities, however, appropriate mechanisms need to be in place. The best way to recover from problems with customer service is to empower front-line employees to handle them as they arise. Being told that the problem is not the fault of the employee and that s/he can do nothing about it is not going to soothe the customer. The customer sees the front-line employee as a representative of the organization at large; if the front-line employee is powerless or incompetent, the customer is more likely to take the same view of the business in general. Therefore, although it is important to manage service operations well, it is equally important to be able to manage service recovery well for those inevitable situations where problems arise.

There are several ways to do this. First, management needs to understand the costs associated with mismanaged customer service as well as the costs to recover from the situation. For example, at Club Med, a satisfied customer typically visits the resort chain four more times after the initial visit whereas a dissatisfied customer does not. On average, for every customer who does not return, Club Med loses $2400 in income. This loss is in addition to the expenses of marketing to find replacement customers.

Another way to improve customer service is to listen closely to what the customer has to say. One way to do this, of course, is to listen to customer complaints and take them seriously. These are opportunities to learn how to improve the service process. However, although some customers freely complain to the organization about poor service, most do not, and just slip quietly away. To help overcome this problem, the business should make it easy for customers to complain. Asking customers how the service was is one way to do this, as are toll-free 24-hour complaint hot lines. However, no matter the medium, it is important to really listen to the customer so that the complaint and the underlying problem are well understood and appropriate action can be taken. It is also important that this action be taken quickly before the customer's negative reaction to the business becomes solidified.

Although management is sometimes required to intervene in order to solve a customer service problem, the best way to handle problems quickly and to minimize negative impact is to train employees to identify problems and empower them to respond to them. Training can help employees know where the fail points in the process are and help them learn to detect when a problem occurs. In addition, employees who deal with customers need to be given both the authority and responsibility to react to customer service problems and rectify the situation appropriately. To further encourage trained, empowered employees to give excellent service, it is helpful to put incentives in place to encourage good customer service and to recognize those who rectify problems quickly, quietly, and well. Through this combination of actions, the impact of inevitable customer service problems can be minimized and the business can keep and expand its customer base.

Terms & Concepts

Fail Point: Those critical points in the service process where the provider has the opportunity to make a serious mistake that can negatively impact the customer's satisfaction with the process or the perception of quality.

Flow Chart: A schematic representation of a process that specifies the order and relationship of operations or activities.

Globalization: Globalization is the process of businesses or technologies spreading across the world. This creates an interconnected, global marketplace operating outside constraints of time zone or national boundary. Although globalization means an expanded marketplace, products are typically adapted to fit the specific needs of each locality or culture to which they are marketed.

Operations Management: Those areas of management that are concerned with productivity, quality, and cost in the operations function (i.e., activities necessary to transform inputs such as business transactions and information into outputs such as completed transactions) as well as strategic planning for the organization.

Program Evaluation and Review Technique (PERT): A form of the critical path method that organizes project task and activity information in a way that allows project managers and other team members to understand which tasks are critical to keeping the project on track and how the other tasks feed into these.

Service Sector: In its essence, the service sector includes those industries and businesses that provide services rather than tangible products for individual consumers, businesses, or a combination of the two. These can include physical, mental, or aesthetic activities (e.g., legal services, entertainment, auto repair) or the transformation of something through such activity (e.g., hair cutting, education, management consulting).

Six Sigma (6σ): An approach to improving quality. The term "six sigma" is a statistical term referring to the degree to which a product reaches its quality goal. At six sigma, a product is reaching its quality goal 99.9999997 percent of the time, or has only 3.4 defects per million. The six sigma system was originally developed by Motorola.

Strategic Planning: The process of determining the long-term goals of an organization and developing a plan to use the company's resources — including materials and personnel — in reaching these goals.

Bibliography

Armistead, C. G. (1989). Customer service operations management in service businesses. Service Industries Journal, 9, 247-260. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=6421930&site=ehost-live

Hart, C. W. L., Heskett, J. L., & Sasser, W. E. Jr. (1990). The profitable art of service recovery. Harvard Business Review, 68, 148-156. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9008131633&site=ehost-live

Idris, F. (2012). Achieving flexibility in service operations using the rigid flexibility framework: an exploratory study. International Journal of Business & Society, 13, 279-292. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=85407023&site=ehost-live

Liu, X., & Donalds, K. (2013). Stimulating reflective learning in teaching a service operations management course. Proceedings for the Northeast Region Decision Sciences Institute (NEDSI), 792-797. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=88837750&site=ehost-live

Montoya, M. M., Massey, A. P., & Khatri, V. (2010). Connecting IT services operations to services marketing practices. Journal of Management Information Systems, 26, 65-85. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=49164622&site=ehost-live

Tinkham, M. A. & Kleiner, B. H. (1992). New developments in service operations management. Industrial Management, 34, 20-22. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4983050&site=ehost-live

Suggested Reading

Craighead, C. W., Karwan, K. R., & Miller, J. L. (2004). The effects of severity of failure and customer loyalty on service recovery strategies. Production & Operations Management, 13, 307-321. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=15753580&site=ehost-live

Harvey, J. (1989). Designing efficient and manageable public professional service processes. International Journal of Operations & Production Management, 9, 35-44. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5118145&site=ehost-live

Johnston, R. (1999). Service operations management: Return to roots. International Journal of Operations & Production Management, 19, 104-124. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=19525930&site=ehost-live

Killeya, J. C. & Armistead, C. G. (1983). The transfer of concepts and techniques between manufacturing and service systems. International Journal of Operations & Production Management, 3, 22-28. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5131551&site=ehost-live

Morris, B. & Johnston, R. (1987). Dealing with inherent variability: The difference between manufacturing and service? International Journal of Operations & Production Management, 7, 13-22. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5118875&site=ehost-live