Robert Johnston and Graham Clarksecond editionServiceOperationsManagementImproving Service DeliveryRobert Johnston andGraham Clarksecond editionService OperationsManagementsecond editionRobert Johnstonand Graham ClarkImproving Service DeliveryThis international market-leading book provides a comprehensive and balanced introduction to service operationsmanagement.Buildingonthebasicprinciplesofoperationsmanagement,theauthorsexaminetheoperationsdecisions that managers face in controlling their resources and delivering services to their customers. Combining a practical approach with a detailed theoretical underpinning, this book provides tools, frameworksandtechniquesforoperationalanalysisandimprovementandsetsoperationsmanagementwithinthewider business context, bringing a valuable perspective to this growing area. Each chapter includes definitions of key terms, real-world examples and case studies with exercises, questionsto test your understanding and recommended further reading to deepen your knowledge.An imprint of ServiceOperationsManagementImproving Service Delivery We work with leading authors to develop thestrongest educational materials in management studies, bringing cutting-edge thinking and best learning practice to a global market.Under a range of well-known imprints, includingFinancial Times Prentice Hall, we craft high qualityprint and electronic publications which helpreaders to understand and apply their content,whether studying or at work.To find out more about the complete range of ourpublishing please visit us on the World Wide Web at:www.pearsoned.co.uk Robert Johnston and Graham Clarksecond editionServiceOperationsManagementImproving Service Delivery Pearson Education LimitedEdinburgh GateHarlow Essex CM20 2JEEnglandand Associated Companies around the worldVisit us on the World Wide Web at:www.pearsoned.co.ukFirst published 2001Second edition published 2005 Pearson Education Limited 2001, 2005The rights of Robert Johnston and Graham Clark to be identified as authors of this work have been asserted by them in accordance withthe Copyright, Designs and Patents Act 1988.All rights reserved. No part of this publication may be reproduced, storedin a retrieval system, or transmitted in any form or by any means, electronic,mechanical, photocopying, recording, or otherwise without either the priorwritten permission of the Publishers or a licence permitting restricted copyingin the United Kingdom issued by the Copyright Licensing Agency Ltd,90 Tottenham Court Road, London W1T 4LP. ISBN 0 273 68367 5British Library Cataloguing-in-Publication DataA catalogue record for this book can be obtained from the British Library.Library of Congress Cataloging-in-Publication DataJohnston, Robert.Service operations management / Robert Johnston, Graham Clark.-- 2nd ed.p.cm.Includes bibliographical references and index.ISBN 0-273-68367-51. Service industries--Management.I. Clark, Graham. II. Title.HD9980.5.J647 2005658--dc222 200406310810987654321100908070605Typeset in 9.5/12.5pt Stone Serif by 30.Printed by Ashford Colour Press Ltd., GosportThe publishers policy is to use paper manufactured from sustainable forests. Preface xiAcknowledgements xvPublishers acknowledgements xviiAbout the authors xix11 Introduction to service operations management 31.1 Introduction 31.2 What is service operations management? 41.3 The challenges facing service operations managers 111.4 Different types of services 161.5 Different types of service processes 221.6 Judging the success of a service operation 251.7 The structure of the book 291.8 Summary 321.9 Discussion questions 331.10 Questions for managers 331.11 Further reading 341.12 References 34Case exercise: Sky Airways 342 The service concept 372.1 Introduction 372.2 The service concept 382.3 The service concept defined 402.4 The service concept as a strategic tool 482.5 Focused and unfocused service operations 552.6 Summary 632.7 Discussion questions 642.8 Questions for managers 642.9 Further reading 642.10 References 65Case exercise: Lilliput Ltd 66vContentspart one Introduction 1 Contentsvi3 Customers and relationships 713.1 Introduction 713.2 Customers and customer segmentation 723.3 Customer retention 813.4 Managing customer relationships 833.5 Managing business relationships 913.6 Summary 983.7 Discussion questions 993.8 Questions for managers 993.9 Further reading 1003.10 References 100Case exercise: The National Brewery 1014 Customer expectations and satisfaction 1044.1 Introduction 1044.2 Customer satisfaction, service quality and confidence 1054.3 Customer expectations 1124.4 Defining expectations service quality factors 1174.5 Finding expectations and assessing satisfaction 1214.6 Managing perceptions 1274.7 Summary 1344.9 Discussion questions 1354.9 Questions for managers 1354.10 Further reading 1354.11 References 136Case exercise: The North County Breast Screening Unit 1375 Managing supply relationships 1415.1 Introduction 1415.2 Types of supply relationships 1425.3 Managing service supply chains 1435.4 Managing through intermediaries 1555.5 Supply partnerships 1595.6 Service-level agreements 1625.7 Summary 1645.8 Discussion questions 1655.9 Questions for managers 1655.10 Further reading 1655.11 References 165Case exercise: The Regional Forensic Science Laboratory 166part two Customer and supplier relationships 69 Contentsvii6 Service processes 1716.1 Introduction 1716.2 Service processes and their importance1726.3 Understanding the nature of service processes 1846.4 Engineering service processes 1986.5 Controlling service processes 2036.6 Repositioning service processes 2076.7 Summary 2156.8 Discussion questions 2166.9 Questions for managers 2176.10 Further reading 2176.11 References 217Case exercise: Computer Services Limited (CSL) 2187 Service people 2207.1 Introduction 2207.2 Understanding the pressures on service providers2217.3 Managing and motivating service providers2277.4 Managing customers 2497.5 Summary 2517.6 Discussion questions 2527.7 Questions for managers 2527.8 Further reading 2527.9 References 253Case exercise: The Empress Hotel Group 2548 Resource utilisation 2568.1 Introduction 2568.2 Capacity management 2578.3 Operations planning and control 2668.4 Managing bottlenecks and queues 2708.5 Managing the coping zone 2768.6 Improving resource utilisation 2818.7 Summary 2868.8 Discussion questions 2878.9 Questions for managers 2878.10 Further reading 2888.11 References 288Case exercise: Medi-Call Personal Alarm Systems Ltd 289part three Service delivery 169 Contentsviii9 Networks, technology and information 2919.1 Introduction 2919.2 How networks, technology and information are transforming service 2929.3 Managing physical and virtual networks 2979.4 Managing technology and information flows 3109.5 Integrating networks, technology and information 3229.6 Summary 3259.7 Discussion questions 3259.8 Questions for managers 3269.9 Further reading 3269.10 References 326Case exercise: The North Island Hospital 32710 Performance measurement 33110.1 Introduction 33110.2 The purpose of performance measurement 33210.3 A balance of measures 33610.4 Interlinking 34010.5 Targets and rewards 34410.6 Benchmarking 34810.7 Summary 35410.8 Discussion questions 35510.9 Questions for managers 35510.10 Further reading 35510.11 References 356Case exercise: The Squire Hotel Group 35711 Linking operations decisions to business performance 35911.1 Introduction 35911.2 The relationship between operational decisions and business performance 36011.3 The service performance network 36211.4 Key stages in developing a network 36911.5 World-class service 37211.6 Summary 38011.7 Discussion questions 38111.8 Questions for managers 38111.9 Further reading 38211.10 References 382Case exercise: Superstore Plc 384part four Performance management 329 Contentsix12 Driving operational improvement 38612.1 Introduction 38612.2 Approaches to operational improvement 38712.3 Service recovery 39512.4 Service guarantees 40712.5 Summary 41412.6 Discussion questions 41412.7 Questions for managers 41512.8 Further reading 41512.9 References 415Case exercise: Gold Card Protection Service 41713 Service strategy 42313.1 Introduction 42313.2 Service strategy 42413.3 Service as competitive advantage 42613.4 Turning performance objectives into operations priorities 43013.5 Strategy formulation and development 43413.6 Sustaining a strategy 43913.7 Summary 44013.8 Discussion questions 44013.9 Questions for managers 44113.10 Further reading 44113.11 References 441Case exercise: Smith and Jones, solicitors 44214 Service culture 44514.1 Introduction 44514.2 Understanding organisational culture 44614.3 Types of culture 45614.4 National cultures 45814.5 The management of change and service delivery 46114.6 Summary 46514.7 Discussion questions 46614.8 Questions for managers 46614.9 Further reading 46714.10 References 467Case exercise: Security Alarm Systems Ltd 46715 Operational complexity 47015.1 Introduction 47015.2 What is complexity? 471part five Managing strategic change 421 Contentsx15.3 Operational consequences of complexity 47515.4 Summary 47715.5 Discussion questions 47815.6 Questions for managers 47815.7 Further reading 47815.8 References 478Index 480Supporting resourcesVisit www.pearsoned.co.uk/johnston to find valuable online resourcesFor instructors Complete downloadable Instructors Manual PowerPoint slides that can be downloaded and used as OHTsFor more information please contact your local Pearson Educationsales representative or visit www.pearsoned.co.uk/johnston xiThe focus of this bookThis book is about the management of operations in service organisations. Ourobjective is to help students and managers understand how service performancecan be improved by studying service delivery and associated management issues.Service delivery is the focus of this book, yet we recognise that success depends notonly on the obvious territory of operations in managing processes and resources,but also in understanding how operations managers must be involved in aspects ofthe organisations strategy, the service concept, organisational culture, and the wayemployees are motivated and managed. How well a service is delivered reflects theability of the organisation to pull all these strands together, providing a servicewhich meets the demands of its various stakeholders, providing appropriate andachievable service to customers whilst meeting required financial targets.The book also focuses on the service sector. This sector encompasses many typesof organisations: public sector, voluntary, mass transport services, professional serv-ices,business-to-businessservices,retailers,internetservices,tourismandhospitality, for example. We do not focus on any particular type of service but seekto cover the many decisions operations managers in all these organisations face. We also refer to many aspects of business performance, not simply profit.Although many organisations are motivated by profit, most operations are alsoassessed on their costs, revenues and adherence to budgets, customer loyalty andtechnological leadership, for example. We have sought to provide examples andillustrations from many different organisations and many countries to reflect thediversity of service organisations. Who should read this book?This book is intended as a textbook for those who want to build on knowledge ofthe basic principles of operations management. It will also serve as a handbook foroperations managers in service organisations as they seek to develop and imple-ment operations strategies. Specifically it is intended for: Undergraduates on business studies or joint studies degrees or those specialisingin hospitality, tourism or the public sector, for example, who wish to enhancetheir understanding of service operations management. MBA students who are managing service organisations and want to stretch theirunderstanding of the area and assess and improve their operations. Executives whowanttofocusoncertainaspectsofservicedelivery,suchasdesign, capacity, recovery, performance measurement or service strategy develop-ment, for example, in order to challenge and change their own organisations.Preface PrefacexiiDistinctive features Operations focused. This text has a clear operations focus and is concerned withmanaging operations. It explores operational issues, problems and decisions. Itexposes undergraduates to the problems faced by service operations managersand helps practising managers deal with those issues. Frameworks and tools. Each chapter provides tools, frameworks and techniquesthat will help students not only analyse existing operations but also understandbetter how they can deal with the issues that operations managers face. Theframeworks, approaches and techniques will vary from topic to topic and willinclude, for example: a list of key points to bear in mind when making decisions in a particular area a diagram or chart showing the relationship between two variables or sets ofvariables to help position an operation or help identify the nature of the rela-tionships a list of questions, checks or tests that can be applied to a situation ways of quantifying or assessing qualitative variables the key stages in undertaking a particular activity. Real world illustrations. Operations management is an applied subject so eachchapter includes a number of short illustrations from around the world thatshow how organisations have either identified or dealt with the particular issuesbeing discussed. Underpinned by theory. Appropriate theoretical underpinning and develop-ments are included and we have tried to explain them in an unobtrusive andaccessible way. References and suggestions for further reading are provided foranyone wishing to undertake more work in a particular area. Managing people. A key task for operations managers is managing people and sothis book contains a significant managing people element. This includes notonly employees but also customers, as well as managing and changing the cul-ture of the organisation as a whole. E-service. Information technology, e-service and virtual operations are integratedinto the book and their operational implications explored in detail. State of the art. The book contains some of the most recent ideas and informa-tion,coveringinparticularworld-classservice,performancemanagement,service concept, service recovery, guarantees, satisfaction and service processes. Summaries. Each chapter concludes with a bullet-point checklist summarisingthe key points in terms of the chapters objectives. Questions for managers. At the end of each chapter there are some questionsaimed at practising managers, which they can ask of their/an operation. Wehope that these questions will encourage you to apply the material in the chap-ter to real situations and allow you to understand better, challenge and improveyour service operations. Discussion questions and further readings. We have also provided some generaldiscussion questions, aimed at undergraduates, to help them both assess and Prefacexiiiapply the material to a variety of situations. There are also some suggestions forfurther reading. Case exercises. Each chapter, with the exception of the final chapter, concludeswith a case exercise suitable for class discussion. The cases are short but focusedon the topic and are a rich source of material for debate and development. Instructors manual. An instructors manual is available to lecturers adoptingthis textbook. It can be downloaded from www.pearsoned.co.uk/johnston andincludes OHP masters of the figures in the book, which are also available on disk.It provides additional detailed questions to go with the cases and bullet-pointanswers to the questions. xvMany people have helped us in the writing of this book. Academic colleagues fromaround the world have provided encouragement and/or contributions, includingimportant ideas and material, useful feedback, illustrations and case studies. Wewouldliketoexpressourgratitudetoallofthem,especiallyColinArmistead,Bournemouth University; Len Berry, Texas A&M University; Guenther Botschen,AstonBusinessSchool;DavidBowen,TheAmericanGraduateSchoolofInternational Management; Stan Brignall, Aston Business School; Stephen Brown,Arizona State University; Dick Chase, University of Southern California; MoiraClark, Cranfield School of Management; Simon Croom, Warwick Business School;DavidCrowther,AstonBusinessSchool;DavidCollier,OhioStateUniversity;Carole Driver, Plymouth Business School; Bo Edvardsson, Karlstad University; LinFitzgerald,LoughboroughUniversity;JimFitzsimmons,UniversityofTexasatAustin;KimJames,CranfieldSchoolofManagement;JohnHaywood-Farmer,UniversityofWesternOntario;JimHeskett,HarvardUniversity;SherylKimes,Cornell University; Bob Lillis, Cranfield School of Management; Loizos Heracleous,TempletonCollege,Oxford;DavidLyth,WesternMichiganUniversity;SteveMacaulay, Cranfield School of Management; John Mackness, Lancaster University;JanMattsson,RoskildeUniversity;BruceMillett,UniversityofSouthernQueensland; Andy Neely, Cranfield School of Management; Alistair Nicholson,LondonBusinessSchool;ElainePalmer,UniversityofAuckland;ParsuParasuraman, University of Miami; Adrian Payne, Cranfield School of Management;Zoe Radnor, Warwick Business School; Aleda Roth, University of North Carolina;Roland Rust, University of Maryland; Michael Shulver, Warwick Business School;Rhian Silvestro, Warwick Business School; Nigel Slack, Warwick Business School;Bernd Stauss, Ingolstadt Katholische Universitt Eichsttt; Mike Sweeney, CranfieldSchool of Management; David Tansik, University of Arizona; Bridgette Sullivan-Taylor, Warwick Business School; Andrea Vinelli, University of Padova; Chris Voss,London Business School; Paul Walley, Warwick Business School; and Jochen Wirtz,National University of Singapore.Practising managers from around the world have also been kind enough to providesome rich material about their activities and organisations, either past or present.OurgratefulthanksgotoSimonArbuthnot,Lexus;BobAtkinson,QueenslandPolice Service; Peter Barnard, Sharnbrook Upper School; Alan Betts, Bedford FallsLearning; Mark Bradley, Customer Service Network; Colin Brown, Anglian Water;Bev Burgess, ITSMA Europe; Roger Clark, independent consultant; Ian Cobbold,2GC; Stuart Cross, Boots the Chemist; Mike Day, Pegasus; J.J. De Gorter, NHS Direct;KeithEdwards,AnglianWater;PaulFlanagan,TheHomeOffice;NicholasGeorgiades, TLC Ltd; Goh Ban Eng, Singapore Airlines; David Good, Central SamuiAcknowledgements AcknowledgementsxviHotel,Thailand;SeanGuilliam,LombardDirect;BernardHarrison,SingaporeZoological Gardens; Bob Heapy, New Islington and Hackney Housing Association;Doug Henderson, DHA; Matthew Higgins, First Direct; Alan Hughes, First Direct;John Hughes, Customer Service Network; Tony Hughes, Mitchells & Butlers; TedJohns,InstituteofCustomerService;LamSeetMui,SingaporeAirlines;GavinLawrie,2GC;KarenLiaw,SingaporeAirlines;LawrenceLim,SingaporeGeneralHospital;MarilynMerriam;JeanNeumann,theTavistockInstituteofHumanRelations;JanNowell,Oxfam;VincentOFarrell,adabra.com;NigelPaget,RACMotoring Services; David Parsons, Institute of Customer Service; Carla Priestley,Customer Service Network; Bruce Rance, Customer Service Network; Kirit Shah, theGP Group, Bangkok; Soo Redshaw, independent consultant; Sara Sheppard, ITSMAEurope; Sim Kay Wee, Singapore Airlines; Roy Staughton, Shape International; DerekTalbot, Northamptonshire Police; Michael Tay, the Institute of Forensic Science andForensicMedicine,Singapore;CatrinWeston,BUPA;YapKimWah,SingaporeAirlines; Laurie Young, independent consultant; and Chris Zane, Zanes Cycles.We are particularly grateful to the books reviewers (both first edition and secondedition) whose considerable efforts and expertise provided us with comments, ideasand suggestions, all of which have had a significant influence on the text. ThereviewersincludedParAhlstrom,ChalmersUniversityofTechnology;ThomasChristiansen,TechnicalUniversityofDenmark;LesleyKimber,SouthamptonBusinessSchool;GeoffreyPlumb,StaffordshireUniversity;GrahamK.Rand,UniversityofLancaster;FrankRowbotham,DeMonfortUniversity;MichaelShulver,WarwickBusinessSchool;RhianSilvestro,WarwickBusinessSchool;Martin Spring, UMIST; Remko Van Hoek, Erasmus and Cranfield Universities; andJan de Vries, the University of Groningen.Our colleagues at Cranfield and Warwick have helped us greatly by not only providingideas and encouragement but also creating the stimulating environment in which wework. We are particularly grateful to our secretaries, Lyn Selby and Mary Walton,whose efforts have kept us focused on the task and as organised as is possible.We have greatly benefited from the guidance, encouragement and support of AmandaThompson and the highly polished and professional team at FT Prentice Hall.It is appropriate also for us to thank all our students, both past and present. Theyhave, over many years, been a source of great stimulation and development. Eachone of them has had an influence on this book.Finally we would like to thank our long-suffering wives, Marilyn and Shirley, and ourchildren; Simon, Jon, Mike and Chris, Kathryn and Sam, for allowing us to dedicate asignificant amount of our time to this project. They have been our major source ofencouragement; without their support, and also their direct involvement in the book,we would never have completed this task.Graham Clark and Robert Johnston xviiWe are grateful to the following for permission to reproduce copyright material:Figures2.4and2.5fromFitzsimmons,J.&Fitzsimmons,M.(eds),NewServiceDevelopment, pp.7191,copyright2000bySagePublications,Inc.ReprintedbypermissionofSagePublications, Inc.; Figure 2.11 from Achieving focus in service organisations in Services IndustriesJournal, vol. 16, no. 1, Taylor & Francis (Johnston, R. 1996); Figure 4.8 from Using service incidentstoidentifyqualityimprovementpointsinInternationalJournalofContemporaryHospitalityManagement, vol. 6, no. 1/2, Emerald Group Publishing Limited (Lockwood, A. 1994); Figure 4.10from The determinants of service quality: satisfiers and dissatisfiers in International Journal ofService Industry Management, vol. 6, no. 5, Emerald Group Publishing Limited (Johnston, R. 1995);Figures 4.124.19 from The zone of tolerance: exploring the relationship between service transac-tions and satisfaction with the overall service in International Journal of Service Industry Management,vol. 6, no. 2, Emerald Group Publishing Limited (Johnston, R. 1995); Figure 5.4 from How muchhas really changed between U.S. automakers and their suppliers? in Sloan Management Review,Summer, Massachusetts Institute of Technology (Helper, S. 1991); Figure 5.5 from Customer Serviceand Support, Pearson Education Limited (Armistead, C.G. & Clark, G.R. 1992); Figure 6.13 fromService transaction analysis: assessing and improving the customers experience in ManagingService Quality, vol. 9, no. 2, Emerald Group Publishing Limited (Johnston, R. 1999); Table 9.2 fromTrusting the Internet: Developing an e-service strategy, Institute of Customer Service (Voss, C. 2000);Figure 10.3 reprinted by permission of Harvard Business Review, from The Balanced Scorecard measures that drive performance by R. S. Kaplan & D.P. Norton, JanuaryFebruary 1992; Figure11.2 EFQM Excellence Model Copyright 19992003 EFQM; Figure 11.8 from Service in Britain: Astudy of service management and performance in UK organisations, London Business School (Voss, C.A.& Johnston, R. 1995); Figures 11.9, 11.10 and 11.11 from Achieving world-class service, LondonBusiness School (Voss, C., Blackmon, K., Chase, R., Rose, B. & Roth, A. 1997); Figure 13.6 fromOperationsManagement,4thedition,PearsonEducationLimited(Slack,N.,Chambers,S.&Johnston, R. 2004); Figure 14.1 from Organizational Culture and Leadership, Schein, E.H., Copyright 1985 John Wiley & Sons, Inc. This material is used by permission of John Wiley & Sons Inc.;Figure 14.3 from Moving up: how to handle transitions to senior levels, successfully, CranfieldSchool of Management (Parker, C. & Lewis, R. 1980). Box 2.5 from Exploiting the service concept for service design and development by G. Clark, R.Johnston & M. Shulver published in J. Fitzsimmons & M. Fitzsimmons, New Service Development:Creating Memorable Experiences (2000), copyright 2000 by Sage Publications, Inc. Reprinted bypermission of Sage Publications, Inc.Every effort has been made by the publisher to obtain permission from the appropriate source toreproduce material which appears in this book. In some instances we have been unable to tracethe owners of copyright material, and we would appreciate any information that would enableus to do so.Publishers acknowledgements xixRobertJohnston isProfessorofOperationsManagementatWarwickBusinessSchool.Hehasamanagement degree from the University of Aston anda Ph.D. from the University of Warwick. Before movingtoacademiaheheldseverallinemanagementandseniormanagementpostsinanumberofserviceorganisations in both the public and private sectors. Hecontinuestomaintaincloseandactivelinkswithmany large and small organisations around the worldthrough his research, management training and con-sultancy activities. His research interests include serviceexcellence,performancemeasurementandstrategy,and he has written numerous texts, papers and casestudies.HehasservedasAssociateDeanatWarwickBusinessSchoolandasAcademic Director of the Warwick MBA Programme and the Diploma in ServiceLeadership. He was the founding editor of the International Journal of Service IndustryManagement and he also serves on the editorial boards of the Journal of OperationsManagement, Journal of Service Research, Cornell Hotel and Restaurant AdministrationQuarterly, International Journal of Internet and Enterprise Management, InternationalJournal of Tourism and Hospitality Research and Managing Service Quality. GrahamClark isSeniorLecturerInOperationsManagement at Cranfield University. He has a degreeinmechanicalengineeringandamastersdegreeinmanagement from Imperial College, London. He hasconsiderable experience in managing operations. SincemovingtoCranfieldin1986,hehasfocusedonresearch and teaching in service management and he isinvolved in a wide range of consultancy assignments.He has written a book on customer support for manu-facturingcompanies,andasecondbook,InspiredCustomerService,wasco-writtenwithDavidClutterbuck and Colin Armistead. His research interestsincludethemanagementofcallcentrepeopleandprocesses, the leadership of change in the implementation of service strategies, andservice performance improvement. He has held the appointment of Director ofQuality for the School of Management, followed by three years as Director of theExecutive MBA Programme. He holds a number of counselling qualifications and isalso involved in personal development programmes for the Cranfield MBA. About the authors Introductionpart one 1Introduction to serviceoperations managementchapter oneChapter objectives: to explain what we mean by serviceoperations management to define service to describe some of the key challengesfaced by service operations managers to identify different types of services andservice processes to discuss how to judge the success of aservice operation to explain the structure of the book.1.1IntroductionWe come into contact with service operations every single day. We are customersor users of a wide range of commercial and public services, such as childcareservices, hospitals, shops, schools, holiday firms, police services, restaurants, tele-vision and the internet. Indeed, many of us are responsible for delivering servicenot only as part of our jobs, in organisations such as those above, but also as partof daily life for our friends and families: providing cooking and cleaning services,taxi services, organising holidays and providing emotional support services. Part One |Introduction4Service operations management is concerned with delivering service to the cus-tomersorusersoftheservice.Itinvolvesunderstandingtheneedsofourcustomers, managing the processes that deliver the services, ensuring our objectivesare met, while also paying attention to the continual improvement of our services.As such, operations management is a central organisational function and one thatis critical to organisational success. It is important to note at the start of this book that service operations covers afar broader field than simply those services that are provided by businesses for con-sumers. The principles we describe apply to all operations that deploy resources inorder to deliver some form of service. These services will include: business-to-consumer services (e.g. financial services, retail, leisure) business-to-business services (e.g. consultants, office equipment provision andsupport, communications) internal services (e.g. personnel, information technology (IT) services) public services (e.g. police, education, health services) not-for-profit services (e.g. charities, faith organisations, aid organisations).In this book we give a detailed coverage of service operations issues and we providemanytoolsandframeworksthatmanagerscanusetounderstand,assessandimprove the performance of their operations. While the development of operationsmanagement as a discipline has its roots in production management (for a discus-sion of this see Johnston 1994 and 1999), this text concentrates on the serviceoperations issues, though many of the concepts are equally relevant to manufactur-ing organisations. Indeed, all manufacturing companies provide services, such ascustomer support through the provision of aftersales service and customer training,or internal service functions such as human resources (HR) or IT, or business-to-business services with organisations in their supply chain. In this introductory chapter we will introduce some definitions and share whatwe think are the significant problems and challenges facing many service opera-tions managers. We need to be clear about what we mean by service and service operations manage-ment. We will start with service operations management.Service operations managementService operations management is the term that is used to cover the activities, deci-sions and responsibilities of operations managers in service organisations. Thesemanagers are often called operations managers but many other titles are used, suchas managing partners in consultancy firms, nursing managers in hospitals, head-teachers in schools, fleet managers in transport companies, call centre managers,customer service managers, restaurant managers ...1.2.11.2 What is service operations management? Chapter 1 |Introduction to service operations management5All these people have a number of things in common: They are responsible for the service operation the configuration of resourcesand processes that create and deliver service to the customer (see Figure 1.1). They are responsible for some of the organisations resources (we refer to these asinputs see Figure 1.1), including materials, equipment, staff, technology andfacilities. These resources often account for a very large proportion of an organi-sations total assets, so service operations managers are responsible for much ofan organisations cost base. They are responsible for some or all of the organisations customers (sometimesreferred to as clients, patients or students, for example) and/or the things belong-ing to their customers, such as their parcels or orders. They are responsible for processing their customers or their parcels or orders.(The service process is the set of activities within an operation, or across severaloperations, that deploy or use those inputs to deliver goods and services to cus-tomers.) For the managing partner in a consultancy firm this might involveoverseeing meetings with clients, data gathering, analysis and report writing. Forthe nursing manager it might involve overseeing patient admissions, tests, treat-ment and discharge. They are also responsible for the goods and services delivered to their customers.The nursing manager delivers (discharges) recovering patients together with theirprescriptions for medicines and outpatient appointments. The managing partnerdelivers the final report and the solution to a problem to the client. Thus serviceoperations managers are responsible for generating most, if not all, of an organi-sations revenue/income.ServiceService means many different things in many different contexts. When we talk tomanagers it is clear that the word service conjures up many different images. Forsome it is synonymous with complaints or customer care, for others it is the equiv-1.2.2Figure 1.1 The service operationSERVICE OPERATIONINPUTSMaterialsEquipmentCustomersStaffTechnologyFacilitiesPROCESSOperationOUTPUTSGoods andservices Part One |Introduction6alent of the logistics function, or internal services such as accounting or personnel.For others it means the 10,000 mile check-up to their car. Haywood-Farmer andNollet (1991, p. 11) neatly summarised this problem:Despite more than 25 years of study, scholars in the field of services management donot agree on what a service is. Indeed, instead of coming closer to a definition they seemto be less certain . . . the problem is trying in a few words to describe 75 per cent of theeconomic activity of developed nations. Is it any wonder that there are exceptions for alldefinitions?Let us use the example of a hospital to provide some clarity.A hospital is a very complex service organisation. A hospital employs large num-bers of staff, from cleaners and porters to highly skilled surgeons. It will care forhundreds of patients each day, through many different specialists departments,eachprovidingawiderangeoftreatments.Managingthisserviceoperationisextremely challenging. The complexity is in part due to the volumes of patientsand the wide range of treatments available, but also due to the fact that, like manyservice organisations, hospitals comprise many different service operations thatmust be co-ordinated and linked together in order to deliver healthcare to theircustomers. For the hospital, these include reception services, diagnostics, phar-macy,theatres(whereoperationson peoplearecarriedout),restaurants,physiotherapy, security and so forth. In addition, there are the internal servicessuch as information systems support and finance. Box 1.1 about Singapore GeneralHospital contains a description from the chief executive officer who explains whatis meant by service and how he tries to achieve it. Box 1.1TheSingaporeGeneralHospital(SGH)isthecountrys largest acute tertiary care hospital. Ithas a total of 1,612 beds and 22 clinical depart-mentsprovidingacomprehensiverangeofmedical services. The hospital employs around5,500 staff, from clinical and research directorstohospitalattendants.SGHisstructuredasaprivate limited company for flexibility of opera-tions, but is a not-for-profit organisation ownedby the Government of Singapore.The hospitals mission is to provide excellencein healthcare through cost-effective methods forthe benefit of the patient, community and staff.Lawrence Lim is the hospitals chief executive offi-cer and he explains how it delivers its mission: The hospital has three pillars supporting ourmission statement. Service, that is taking careof our patients, is our number-one priority. Thesecondpillaristeachingandnurturingthenextgenerationsofcare-givers,doctors,nurses,physiotherapists,etc.,andthethirdarea is undertaking clinical research to expandour knowledge and skills in medical science.Intermsofserviceweaimtoofferourpatientsbestoutcome,bestexperience. Wewant to provide the best outcome by providingthe best clinical care. I know people do not wishtocometoahospital,butiftheyhaveto,wewant to provide them with the best experiencepossible. This idea was derived and drawn up bythe doctors and administrators together and pro-vides a common purpose, mindset and languagethat permeate the whole hospital. There are fourkey principles underlying this: assure best outcomes (i.e. clinical quality) createseamlessservice(i.e. operationalquality)Singapore General Hospital 7From the customers perspective, service is the combination of the customers expe-rienceandtheirperceptionoftheoutcomeoftheservice.Theexperienceatatheme park, for example, includes the experience of the rides and the restaurants,and the outcomes will include the food and drink, the emotions of enjoyment andtheir view of value for money at the end of the day. It is important to note thatcustomers also have to make an input to the service. These customer inputs includetheir time and effort plus the financial cost (i.e. the price they pay for the service)(see Figure 1.2). A customer can only receive the theme park service (and have agood day out) if they give up some time, go to the theme park, pay to get in andmake the effort to use the rides and enjoy themselves. build relationships delight with personalised care (i.e. servicequality).We have a quality council comprising doctorsand administrators that come together to chartthe strategies and programmes for quality inthehospital. Theydiscussclinicalquality,which has to do with getting doctors, nurses,physiotherapists, etc. to produce the best out-comeforthepatient. Wealsotalkaboutoperationalquality,thatishowwemoveapatient around and how we organise our serv-ices around the patient. These activities mainlyconcern operational processes, which we trytoengineer inordertocreateaseamlessservice for the patient. We are also concernedwith service quality, which is about the individ-ual; buildingarelationshipwiththepatientsand showing that we care. From the patientsperspective all these three types of quality, i.e.clinical,operationalandservice,areinter-twined, but we need to ensure that our staffare focused on all of them too.We have worked with all the different peoplein the hospital to try to get everybody to thinkhow they can improve the service. We get themtothinkaboutcommunicationskills,evengrooming, dress and body language. We are agovernment hospital and peoples concept of agovernmenthospitalinthepastisthatitisbureaucratic, officious and slow to respond. Ialways tell my staff, lets surprise the patient!Questions1 How has Lawrence Lim focused his staff onproviding best outcome, best experience?2 Fromwhomdoyouthinkheencounteredmost resistance, and why?Figure 1.2 Service = experience + outcomeSERVICE PRODUCTOUTCOMESValueEmotionsJudgementsIntentionsEXPERIENCECustomerINPUTSTimeEffortCostChapter 1 |Introduction to service operations management Part One |Introduction8Let us provide some more detail. These two elements, service experience and serviceoutcome, form what is often referred to as the service product or service package (seeFigure 1.2). The primary reason customers are paying for, or using, an organisationsservices is to receive this service product. Examples of service products might include: car insurance consultancy advice a restaurant meal computer maintenance healthcare.Within each of these products there are two key ingredients: the outcomes of theservice and the service experience. Although we describe these two aspects sepa-rately below, it should be noted that there may be considerable overlap betweenoutcome and experience. It is also important to realise that a customers evaluationof one component may influence their perception of the other. A service experi-ence that exceeds customer expectations may give rise to a better evaluation ofservice outcome than might otherwise have been expected.The service experienceThe service experience is the customers direct experience of the service process andconcerns the way the customer is dealt with by the service provider. It containsaspectsofhowcustomer-facingstaffinteractwithcustomersandalsothecus-tomers experience of the organisation and its facilities.It should be noted that the customers experience of the organisation as a wholewill probably start before this point, as expectations are shaped by sales and mar-keting activities and by word-of-mouth advertising from existing customers.Aspects of the service experience include: the extent of personalisation of the process the responsiveness of the service organisation the flexibility of customer-facing staff customer intimacy the ease of access to service personnel or information systems the extent to which the customer feels valued by the organisation the courtesy and competence of customer-facing staff interactions with other customers.The service outcomeWe use the term service outcome to describe the result for the customer of servicedelivery. The key and most obvious output is the expected and often tangibleoutput of the service. Examples of this might be the ability of a recipient of a soft-ware training course to construct a spreadsheet, or for a patient in a hospital toenjoy full mobility after a hip operation. There are also some less tangible out-comes, such as value, emotions, judgements and intentions. Chapter 1 |Introduction to service operations management9Value (see also Chapter 2) is the customers assessment of the benefits of theservice weighed against all the costs involved. The benefits will include the experi-ence (the pleasantness of the experience and also psychological factors such as afeeling of well-being or being recognised, in a restaurant for example) and the out-comes(suchasthequalityandquantityoffood,feelingsofsatisfactionandhappiness, pleasure resulting from a social occasion) weighed against not only thefinancial cost that was paid directly or sometimes indirectly by the customer butalso the time and effort that was involved for the customer in acquiring and receiv-ing the service.Emotions are strong mental or instinctive feelings, such as pleasure or frustra-tion, delight or disgust. These may be concerned with the tangible output and/orthe way the customer was treated (the experience) (see Box 1.2). For example, apatient may feel annoyed and upset that a hospital operation was not a success, oreven if the operation was a success the patient may feel displeasure about the waythey were treated by the staff.Judgements are opinions that form as a result of customers feelings about theirexperience and output (including perceived value). These judgements will includeviews about fairness (or equity), satisfaction (see Chapter 4) or loyalty (see Chapter3), for example. Those judgements, good, bad or indifferent, will result in intentions, such as theintention to repurchase or not, the intention to tell friends and relatives how badthe service was or the intention to complain or not. These intentions may or maynot result in action.Box 1.2John Smith put down the phone. He had spentthe last 45 minutes speaking to various people inthe customer service department of FinanceCoLtd. The problem had started several months ear-lier when John had taken out a subscription to agardeningmagazinechargedtohisFinanceCoplatinum credit card. FinanceCo had offered a 10per cent discount for the first three months sub-scription if customers signed up for at least sixmonths.Theamountwouldbeaddedtocus-tomers credit card accounts each month.The first magazine arrived promptly, the secondwasaweeklate,andthethirdfailedtoarrive.JohnSmithdecidedtocancelhissubscriptionand rang FinanceCo to do this. A helpful-sound-ing customer service agent (CSA) agreed that hehad received poor service and agreed to end thesubscription and refund the last months payment.John was more than content with this, feeling thathiscomplainthadbeendealtwith.Thenextmonthsstatement,however,didnotshowtherefund and, worse still, a further months subscrip-tion had been put on to his account.As he had been rather busy, John did not havechancetoquerythisentryuntilanothermonthhad gone by, with a further subscription added,plus interest on subscriptions unpaid. Further callsto the customer service department meant con-versationswithCSAswhowerefriendly,madepromises, but seemed unable to keep them.Eventually, after yet another conversation withasympatheticCSAwhoseemedunabletoresolve the issue, John demanded to talk to thecustomerservicesmanager.Afteralengthyphone call (which John paid for), the matter wasfinally resolved.FinanceCo 10Service and service operationsWe have defined service as the combination of outcomes and experiences delivered toand received by a customer. Customers therefore judge the quality of the service onthe experience as well as the outcome. Students on a business administration pro-gramme or executives on a training course are buying both the experiences the timein the lecture room, the process of learning and the interaction with other people aswellastheoutcomes,whichwillincludeincreasedeffectivenessatwork,betterprospects in the job market, a qualification and their feelings about the way in whichthey were treated. The role of service operations managers is to manage and integrateboth aspects, though long-term success in terms of financial performance, customersatisfaction and competitive advantage, where appropriate, may come from either orboth, dependent on the nature of the service and the competitive environment One of the most important, intriguing and challenging aspects of managingservice operations (certainly when compared to manufacturing operations) is thatmany (though not all) service operations process customers. These are sometimesreferred to as customer processing operations (Morris and Johnston 1988). Thetheme park cannot physically give you the rides unless you turn up, the doctorcannot give you an injection unless you are physically in the same place. Thismeans that the customers experience is an intrinsic part of the operations process(see Figure 1.3). As a result, the customer sees much of the process and, in manycases, plays a key role or part in the process itself. 1.2.3Questions1 What emotions do you think John Smith expe-rienced during these transactions?2 WhatisthelikelihoodofJohnSmithrepur-chasingamagazinesubscriptionthroughFinanceCo?Figure 1.3 Managing service and service operationsSERVICE OPERATIONINPUTSMaterialsEquipmentCustomersStaffTechnologyFacilitiesPROCESSEXPERIENCEOperationSERVICE PRODUCTOUTCOMESValueEmotionsJudgementsIntentionsCustomerPart One |Introduction Chapter 1 |Introduction to service operations management11It is important to note that customers may not see and/or experience the whole ofthe process; they will only be involved in the front office (the overlapping sectionin Figure 1.3). The back office contains tasks that are carried out usually unseen bythe customers, such as cooking the food in some restaurants, or baggage handlingat an airport. This overlap of the process and the customers experience, together with theintangibility of many services, makes the job of a service operations manager par-ticularly challenging, exciting and, at times, frustrating.Managing service operations is something we all do: either unpaid, such as runninghomes and families, arranging holidays for friends and family, working for faithorganisations and charities; or paid, such as managing childcare facilities (see Box1.3), working in hospitals, hotels, banks, schools or design companies, for example.While each operation has its own particular demands, there are a number of key chal-lenges faced by most if not all service operations and service operations managers: managing multiple customers understanding the service concept managing the outcome and experience managing the customer managing in real-time co-ordinating different parts of the organisation understandingtherelationshipbetweenoperationsdecisionsandbusiness/organisational success knowing, implementing and influencing strategy continually improving the operation encouraging innovation managing short-term and long-term issues simultaneously.In the following sections we have noted the chapters where we explain how serviceoperations managers can deal with these challenges.Managing multiple customersMany service organisations do not serve a homogeneous group of customers; theyoften serve, in different ways, different types of customers. The nurserys customers(see Box 1.3) include both the child for whom it is providing an education and socialexperience, and also the parents for whom it is providing a parental substitute serv-ice. There are other customers, sometimes termed stakeholders, such as educationauthorities and health and safety officials, for whom the nursery provides informa-1.3.11.3 The challenges facing service operationsmanagers 12tion and related services, as well as internal customers the staff whose welfare andtraining needs, for example, need to be considered. Understanding who are the vari-ous customers (Chapter 3), understanding their needs and expectations (Chapter 4),developing relationships with them (Chapter 3) and managing the various customers(Chapter 7) are key tasks for service operations managers.Understanding the service conceptThere may be differing views about what an organisation is selling and/or the cus-tomer is buying. Some parents may see the nursery as simply a babysitting service;others may see it as a critical educational experience for their offspring. Articulatingand communicating the service concept (Chapter 2) is critical for clarifying theorganisations product to all its customers, and for ensuring that it can be delivered(Chapters 69) and that it is delivered to specification (Chapter 10).1.3.2Box 1.3In1991agroupofCambridgeUniversitystu-dents from the School of Computer Science setupthefirstwebsitecamera(webcam).Theyfocused it on the faculty coffee machine so thatmembers of staff could see on their desk com-puter a live picture, updated every few minutes,of the machine. This allowed them to check thatthe coffee jug was not empty before they went tousethemachine.Ahigher-profileuseofwebcams was made in 1996 when Jennifer Ringley, aweb-pagedesignerfromWashington,DC,trainedacameraonherlifeandbroadcast24hours a day from her flat. Because web cams are relatively cheap andeasy to set up, with basic systems only requiringa PC with a camera, a video capture card and aconnection to the internet, they are now found ina wide variety of situations. Now there are over10,000webcamsworldwiderelayingimagesevery few seconds 24 hours a day. Anyone con-nectedtotheinternetcannowseesomebreathtakingandbizarresights,includingtheconditions at 3,880 metres on Mount Everest, theviewofthetopoftheskirunatLakeTahoe,sightsintheAfricanBush,viewsfromthePalazzoSenatorioinRome,weddingsatLasVegas Little White Chapel, even the contents ofa Swedish familys fridge!One recent innovation has been the arrival ofweb cams in nurseries so that anxious parentscan use their computer at work or home to lookin on their children. Security is tight, with pic-tures being encrypted and passwords requiredforaccess.Thepicturesparentsreceivearesingleframes,updatedeveryminute,butthequalityisgoodenoughforparentstocheckiftheir child is relaxed, happy and well cared for and to remind them what life is about! While parents and grandparents are revellingin this innovation, others are queuing up to con-demn it. Some psychologists are concerned thatit becomes an on-screen substitute for involve-ment in a childs upbringing that simply assuagesthe guilt of working mothers. Other people worryabout it fuelling the current paranoia about childsafety.However,atatimewhenchildcareisneeding an injection of trust and with more andmoreworkingparents,cybernurseriescouldsoon be commonplace.Questions1 What are the advantages and disadvantagesof having web cams in nurseries?2 Howdoyouthinkthenurserysservicehaschanged as a result of the web cam?This illustration is based on material in Big mother is watchingyou, London Evening Standard, Friday 5 November 1999,pp. 1011, and Around the world in 10,000 web cams, DailyMail, Tuesday 15 February 2000, p. 53.CybernurseriesPart One |Introduction Chapter 1 |Introduction to service operations management13Managing the outcome and the experienceOne of the challenges for the service operations manager is that, for many services,there is no clear boundary between experience and the outcome. Customers in arestaurant are buying both the meal and the way that they are served. The educa-tionandtheeducationalexperience,likewisethechildcareandthechildcareexperience, are inseparable. This is rather different from most manufacturing opera-tionswheretheproductionoftheproductmaybeseparatedfromhowitisdelivered to customers. A critical challenge for service operations is managing bothoutcomes and experiences simultaneously (Chapters 69).The intangible nature of the experience provides particular problems for bothspecification and indeed control. Some call centres, for example, use scripts toensure conformance and clarity, but such scripts lose out on flexibility, develop-ment of rapport and maybe also opportunities for cross-selling (see Chapter 7). Thisrequires a clarity about the experience the organisation is selling (Chapter 2), sup-ported by appropriate performance measurement (Chapter 10).Some service organisations try to manage the intangible parts of the service byattempting to make them more tangible. At the nursery the intangible experiencefor the child has now been captured as a television product, visible and available tothe parent (Chapter 2).Managing the customerMany service managers face a challenge not shared by their manufacturing coun-terparts, which is the presence of the customer inside the operation, often as anessential part of the service production process. In a restaurant customers are notjust walking away with a meal inside them (the tangible output); they have alsoreceived a service in which they too have played a part. Their mood, attitude andactions may well have an impact not only upon their own experience but alsoupon that of other diners and the general atmosphere of the restaurant. This meansthat service operations managers, unlike many of their manufacturing counter-parts, have also to manage, so far as this is possible, the customer during the serviceprocess. This requires careful design of the processes that handle back office activi-ties but especially those that handle the customer. The service design must managethe customer through the process with an awareness of the impact on the cus-tomers experience and other customers experiences. A good design will also takeaccount of how delivery processes impact on the employees feelings, as their atti-tudes will have a significant bearing on service performance (Chapters 69). A keytask for the nursery workers is managing the children in their care and recognisingthat tears or tantrums can easily affect the other children in the group. The presence of the customer also renders the operation visible to the customer,so the service environment, sometimes referred to as the servicescape, needs to bedesigned to create the right atmosphere for the service (Chapter 6). In the nursery,the facilities and activities are visible not only to the child but also to the parentswhen dropping off and picking up the child and during the day as they drop invia the web. As such, the servicescape is an important part of the service for cus-tomers and employees alike.1.3.41.3.3 Part One |Introduction14Managing in real-timeMany services happen in real-time they cannot be delayed or put off. A passengerwanting to purchase a ticket for immediate travel may not be willing to return ifthe agent is busy. Streams of aircraft coming into land cannot easily be put on holdwhile equipment is serviced or controllers take a break. Children screaming forattention or in danger from hurting themselves in the nursery likewise cannot beignored. Furthermore, during a service encounter it is not possible to undo what isdone or said things said in the heat of the moment or promises made that cannotbe kept. Unlike in manufacturing organisations where it is possible to scrap defec-tive products and remake them, in service there is no undo or rewind button.Smacking a child in the nursery is inexcusable and will not go unnoticed with webcamspiesintheroom.Managingresources(Chapter8),managingstaffandemployees (Chapter 7) and creating an appropriate culture (Chapter 14) are keytasks in managing real-time services.Co-ordinating different parts of the organisationThe management of service operations is extremely demanding, requiring an inte-grationofmarketing,resourcemanagement,peoplemanagementandsoon(Chapter 15). The service operations manager is responsible for co-coordinating thevarious parts of the organisation in the delivery of the service product; this includesnot only understanding the needs of customers (Chapter 4) but also overseeing thelogistics of the supply chain to ensure that all materials and equipment are in theright place at the right time (Chapter 5). A nursery without staff and the rightmaterials will not only provide a poor experience for the child but could be poten-tially dangerous. At the same time as delivering service, the service operationsmanager has to ensure that the operation is viable (Chapter 11) and supports thestrategic intent of the organisation (Chapter 13).Understanding the relationship between operationsdecisions and business/organisational successMaking the right decisions that lead to business or organisational success is a majorchallenge for many service operations managers. Business success may mean satis-fying and retaining customers, attracting new customers, entering new markets,making profit, reducing costs or meeting budget targets. The problem is in knowingthe effect of pulling operations levers (making operations decisions) on businessperformance (Chapters 10 and 11) and in knowing which improvements are appro-priate(Chapter12).Nurserymanagersusingwebcamsbelievethattheirintroduction provides a highly valued service for their parents, giving them an edgein the market and maybe even allowing them to charge more for their services.1.3.71.3.61.3.5 Chapter 1 |Introduction to service operations management15Knowing, implementing and influencing strategyOperations, besides being the doing part of the business, are also responsible forthe implementation of strategy (Chapter 13). It is the nursery operation and itsstaff that deliver childcare, not its marketers or financial managers, though in asmall organisation like the nursery these roles may be undertaken by the samepeople. It is therefore critical for service operations managers to understand theirrole not only in implementing strategy but also in contributing to it. Service opera-tions managers can have a significant effect in developing and sustaining a strategy(Chapter 13) by knowing what they can, or could, deliver (Chapters 69) and bydriving change through the organisation (Chapter 12).The other strategic challenge for service operations managers is to provide theplatform for competitive advantage. Rather than creating a service proposition andmatching the operation to this, it may be that there is a competence in operationsthat can be turned to strategic advantage. The web cam might provide a nurserywithacompetitiveadvantagethatmaybedifficultforlesstechnologicallyadvanced nurseries to provide. Continually improving the operationA challenge faced by all service operations managers is how continually to improveand develop their processes and products (Chapter 12), ensure that the outcomesare real improvements (Chapters 10 and 11) and that there is a culture that is sup-portive of service and change (Chapter 14). An important management challengeinthisareaisinmanagingtheincreasedcomplexityresultingfromchange(Chapter 15). In many cases this includes improving efficiency as well as quality.Encouraging innovationImproving the operation is about taking what exists and developing it. Innovation,on the other hand, looks for what is not there, i.e. what is new. Innovation there-fore usually requires an element of risk; financial risk because innovations requiretime and money, and often personal risk as the champion for change puts theirreputation on the line. Introducing the web cam to the nursery was an innovationthat required some expense and no doubt attracted some detractors. Whether it is asuccess only time will tell. A critical role for service operations managers is to bealert to, and seek out, new ideas but also to have the will, and support, to assessthem carefully and follow through if appropriate (Chapters 714).Managing short-term and long-term issues simultaneouslyA significant component of the excitement of operations management is its imme-diacy. By this we mean the constant challenge of dealing with the needs of a streamof customers, and making operational decisions to ensure the delivery of an appro-priate quality of service at an appropriate cost. The danger of this immediacy is that1.3.111.3.101.3.91.3.8 Part One |Introduction16it can lead to a short-term focus. Many service operations managers focus theirtime and effort on managing the day-to-day operations for the following reasons: The pressure on the organisation to perform in the short term leaves little timefor medium-term operational improvement activities or longer-term strategicplanning. For example, it is difficult for call centre managers to put time intosolving underlying problems when they are involved in recruiting emergencystaff to try to deal with a flood of calls. The contrast between the tangible, rational nature of many short-term opera-tionaldecisionsandtheintangible,moreintuitiveprocessesrequiredforstrategic thinking may mean that the individual managers style may contain abias towards the tactical implementation of strategy rather than its formulation.The call centre manager may get a buzz out of firefighting the current problemand may be less inclined to put time into the more routine and less exciting taskof data collection, analysis, report writing and high-level debate and discussionto try to resolve underlying and longer term issues.As a result, the development and strategic aspects of operations management arefrequently neglected and so a disproportionate amount of time is spent on manag-ing the day-to-day operations. Operations managers must pay attention to bothstrategy and the detail of process and resource management to create and sustain asuccessful organisation (Chapters 69, 12 and 13).Just as managing service operations involves the general set of challenges set outabove,eachpartoftheservicesectorhasitsownparticularsetofproblems.Managing a for-profit consultancy with a small number of high-value clients posesrather different problems to managing an aid agency in a disaster-struck, heavilypopulated region of a developing country.Each sector of the service economy (such as financial services, tourism, leisure,charities, government, hospitals, business-to-business services) has its own set ofspecific challenges, although of course much of the general theory and practicedescribed in this book applies to all operations. This section describes some of thedifferences between the various types of services and outlines some of the particularchallenges faced by each sector. In reading this section, it is necessary to be awarethat each of these services will also have issues relating to aspects such as: The volume of transactions in a given time period. The hypermarket has verydifferent operation challenges from the local grocery store, not least in simplymanaging the flow of hundreds of customers in the store. The mode of service delivery. The retail sector provides a good example of thisdiversity, with face-to-face service in traditional stores, remote service throughmail order or telephone shopping, and, more recently, internet-based services.Here we explore some of the key differences in service provision between five broadsectors of the service economy (see Table 1.1):1.4 Different types of services Chapter 1 |Introduction to service operations management17 business-to-business (B2B) services business-to-consumer (B2C) services internal services public services (sometimes referred to as G2C government-to-consumer) not-for-profit services.It is important to note that we use the term customer as an all-embracing termthat covers users, consumers and beneficiaries, for example.Business-to-business (B2B) services B2B services are provided by businesses for other businesses or organisations. IBMGlobal Services, for example (see Box 1.4), provides a range of services to its busi-ness customers, including computer installation and maintenance and a range ofmanagement consulting services. Other B2B services include outsourced cateringservices, buildings maintenance or leasing and supporting equipment, financialservices and market research. Some of the challenges for B2B services include:1.4.1Table 1.1 Types of serviceBusiness-to- Business-to- Internal services Public services Not-for-profitbusiness (B2B) consumer (B2C) (G2C) servicesservices servicesDescription Services provided Services provided Services provided Services provided Services provided byfor businesses for individuals by internalby central or local non-governmentfunctions withingovernment organisations (NGOs)organisations or charitiesExamples Maintenance Shops Finance Prisons HospicesConsultancy Hotels Purchasing Hospitals CounsellingTraining Banks IT Schools Faith organisationsCatering Food Personnel Leisure Aid agenciesCustomers Frequently Usually purchased Users have little Users may have Beneficiaries areand purchasers purchased byby the individual or no choice of little day-to-day self-selecting orprofessionals,consumer provider;choice; funded chosen recipients;who are notfrequently funded through taxation funded throughnecessarily theby central budgetwith the allocation individual andend users of resourcesorganisational givinginfluenced by political processesChallenges ProvidingProviding Demonstrating Balancing the Dealing withhigh-qualityconsistent service value for money various political differences betweenservices toto a wide variety against possible pressures and volunteers, donorsbusinessof customers externalprovidingand beneficiariescustomers whoalternatives acceptableDealing withfrequently havepublic services emotional and high purchasingsometimes power overwhelming needs Part One |Introduction18 Dealing with multiple contacts in the organisation. Consultants may have towork with a wide range of employees in their client organisations and so main-tain relationships at different levels in the organisation (Chapter 5). Working with a complex set of relationships. The users or recipients of a servicewill frequently not be the purchasers, and this purchasing group may in turn bedifferent from those who commission or specify the service standards (Chapter 3). B2B relationships may last for a long time. The challenge here is for the relation-ship not to become too cosy, with the customer or supplier being taken forgranted (Chapter 5).Box 1.4IBM is widely regarded as a successful servicecompany providing its business customers withsolutions to their problems. In 2003 IBM had aturnover of over $89 billion and a gross profit of$33 billion. While sales of hardware and softwareaccounted for just over 50 per cent of revenue,theremainder,andaround30percentofthegrossprofit,wasgeneratedbyIBMGlobalServices (IGS), a rapidly expanding part of thebusiness.IGShasawideportfolioofserviceswith,forexample,computerinstallationandmaintenanceservicesatoneendofthespec-trum, and its wide-ranging business consultingservices at the other. Brian Sellwood, the general manager of IBMGlobal Services, responsible for delivery, opera-tionsandapplicationsmanagementservicesacrossEurope,AfricaandtheMiddleEast,describes the importance of services:In todays computing industry it is very difficultto differentiate one supplier from another intermsoftheirhardwareandsoftware.Theproduct itself is no longer, or very rarely, a dif-ferentiator.Itswhatyoucanofferthecustomeraroundthatproduct,andthatsinvariablyservice,servicessuchasprojectmanagement,applicationimplementation,fixing a fault with a machine, how you manageand perform that service. Its about what youdowiththatproduct,howyoumanagethatrelationship, how you treat the customer, howyou respond to their problems and the solu-tionsyoucanofferyourcustomerstomaketheir businesses stronger and better.This approach is considerably different to just tenyears before when IBM was renowned as a prod-uct-based company specialising in developingand selling computer hardware and software. Itwas also making a loss. IBM set about creatinganorganisationthatwasfocusedonitscus-tomersandnotonthecompanysproducts.Brian Sellwood explained:Wewerenotintoservices;wewereahard-ware/software product company. The first stepwas to start understanding what the customerwanted;whattheywantedtobuyandhowthey wanted to see it packaged. Having under-takensomemarketanalysiswedecidedtostart very simply with what we had, and pack-age it better, rather than build a whole new setofnewservices.Overtimewerealisedthatwhat we had was not quite what the customerswanted to buy; they wanted value-add. Thatmeantwehadtochangeandredefineourportfolio.Wehadtolistentowhatourcus-tomers were asking for and at the same timeobserve what the competition were doing andtry to see where there were gaps in their port-foliosandopportunitiesforus.Andthishasbeenacontinuousprocesseversince.Thiscontinual refinement of what we are offering tothe customer has played a key role in stimulat-ing our growth over the last ten years.In the early stages we found that customerswere looking for help but had not always beenable to express that need because there wasnot always someone willing to listen. In factthere was no shortage of opportunities for usIBM Global Services 19Business-to-consumer (B2C) services B2C services are those that individuals purchase for themselves or on behalf ofanother individual. They range through leisure services such as hotels, restaurantsand sports provision, retail services such as shops and supermarkets, financial serv-ices such as banks and insurance providers, through to professional services such aslawyers and accountants. The challenges faced by most B2C services include: The organisation may deal with many different customers each day. Each havetheir own special needs and expectations of service delivery and, to make mat-ters more difficult, these may change for the same individual from day to day(Chapters 3 and 4). Because the operation serves so many customers, it faces a major challenge inkeeping the experience fresh for the next new customer. It may be the first andonly time the customer experiences this service, although the customer may bejustoneoutofhundredsthatanindividualmemberofstaffseesinaday(Chapters 6 and 7). Many B2C service operations have the added complication of the need for con-sistencyacrossmanypointsofcontactwithcustomers,frequentlyspreadnationally if not globally (Chapter 6).Internal servicesThere are many services in large organisations that do not deal with the externalcustomer, such as personnel, finance, purchasing and IT support. These servicefunctions provide support services to the value-adding parts of the organisation. Aconsiderable number of people are often employed by organisations to providethese services. The particular challenges faced by these service operations include: Demonstratingthattheinternalserviceprovidesatleastasgoodvalueformoney as an external alternative. This is a challenge faced by many IT depart-ments,forexample,whoseusersoftenfeelthattheycouldobtaincheaper1.4.31.4.2to go and advise customers on how to makebetteruseoftheirinstalledequipment.Wefound customers wanted almost anything andour challenge was to respond appropriately.No two customers were the same and so thechallengewastobeabletoofferthecus-tomerssolutionstotheirspecificproblemsrather than saying we have this solution andthat will fit your business. From that beginningwe were able, slowly, to add more services,eventually developing a business consultingcapability where we could advise on how touse and manage applications more effectively,how to install and help customers install appli-cations,andadvisecustomersonprocessengineering,supplychaindevelopmentandbusiness transformation.Questions1 What does service mean to IBM?2 What do you think were the main problems intransformingaproduct-basedorganisationinto a service-based organisation?3 What do you think are the key challenges thatthe organisation faces today?Chapter 1 |Introduction to service operations management Part One |Introduction20equipmentmorerapidlyfromthelocalcomputerstoreorviatheinternet(Chapter 2). Adapting the service to the business need. If the service provision is effectively acommodity, it can be outsourced (Chapter 5). Internal service providers mustdemonstrate their ability to tailor their offerings to the changing business needsin a way that external providers cannot (Chapter 13). Gaining acceptance from their internal customers. Centrally funded services arefrequently viewed with suspicion by local operating units and may not receivethe co-operation required to carry out their tasks effectively (Chapter 14).Public services (G2C)These services are provided by central or local government for the community atlarge. Funding comes through the various forms of business and individual taxa-tion,whichisthenlargelyallocatedbypoliciessetbygovernment.Examplesincludepolice,prisons,hospitalsandeducation.Specificchallengesforpublicsector services include: Theprovisionofbest-valueservices.Publicservicesareundercontinualscrutiny. As a result, aspects of service operations that might be taken for grantedby their private sector colleagues must be carefully justified in these organisa-tions (Chapters 10 and 11). Rationing supply of service. Public sector organisations cannot use the pricingmechanism to regulate demand. With essential services, this can be a very sensi-tiveissue.Thehealthservicemustmakepolicydecisionsastohowmuchresource can be devoted to heart operations, to maternity services, and so on.Expenditure on intensive care units and accident and emergency provision areparticularly sensitive since lives are at stake, but inevitably there will be timeswhen demand outstrips supply (Chapter 8). Multiple stakeholders. Public services suffer from having many customers. WithB2C services it is reasonably clear who the customers are, and if this group is sat-isfied, generally speaking the organisation should be successful. This is not thecase with the public sector, where the recipients of the service, as individuals,have little power to influence. Politicians and service managers themselves mayhave far more power to decide current priorities (Chapter 3). A confused service concept. The service concept provides direction for the organ-isation (we devote Chapter 2 to the discussion of the role of the service concept).Some public services are provided for the good of society at large and are notnecessarily greatly loved by those who have to deal with them. Prisons, policeservices and tax collectors may fall into this category.Not-for-profit servicesCharities of various types form the majority of these services. Most engage in amixture of fund raising, providing information about the cause or issue that con-cerns them, and in some form of social action. An organisation such as Oxfam1.4.51.4.4 Chapter 1 |Introduction to service operations management21must gather funds for famine relief and then organise to supply and distribute aidas required. Challenges for these services include: Managing a workforce of volunteers who, though highly motivated, may notfollow the organisations procedures (Chapter 7). Managing the allocation of resources to ensure that maximum funds flow to thebeneficiaries of the organisation, while developing effective processes and people(Chapters 69). Dealing with differences between the activities that might influence and impressdonors, but which might conflict with the requirements of their customers(Chapter 2). Working in a highly emotional area, sometimes being overwhelmed by demandfor service (Chapters 68).Different services within a sectorJust as each particular sector has its own set of challenges, there can be significantdifferences between service operations within sectors. This may relate to the waythe organisation has chosen to compete or which customer segments are to beserved. Table 1.2 outlines some key differences between two B2C organisationsoperating in the same sector: a low-cost airline and a full-service airline.One of the challenges for service operations managers is to match the style ofoperations, decisions about processes, people and networks to the overall strategyof the organisation (Chapter 13). To do this, the operations manager must have aclear understanding of how the operations function contributes to the overall suc-cess of the organisation. We will discuss this question in more detail in section 1.6.1.4.6Table 1.2 Comparing airline operationsLow-cost airline Full-service airlineBusiness model High volume, low cost Global network, profit made on business travelNetwork Short haul, with no Long haul, with connections toconnections to other carriers global partner airlinesCabin service Basic, no food, no frills Range from economy to first classLocations Secondary, low-cost airports Primary airports to allow interconnectionsVolume Multiple flights per routeRange from three flights per day toeach day one flight per week for less popular destinationsBooking system Direct through own website,Usually through intermediariesand/or own call centre (travel agents) Part One |Introduction22A merging of distinctionsOver the last few years the distinctions between different types of organisationsthat we have outlined above are starting to disappear: Old borderlines are evapo-rating, old categories are merging. The divisions between commercial, public-sectorand non-profit organizations are becoming blurred. All organizations now act onthe same stage, and need to justify their place on that stage (Jones 2001, p. 38).Some non-commercial organisations, public sector organisations and charities, forexample, emulate the private sector; they have chief executives, strategic plans,marketing departments and customers. Public organisations, although they do nothave competitors, recognise that their customers judge their service against for-profit organisations. Charities and government bodies have money-making arms.The British Council, for example, which promotes British culture around the world,also runs for-profit language schools. Universities, charities and faith organisationstalk openly about market share. On the other hand, some commercial organisations commit themselves to adhereto the principles of corporate social responsibility (CSR). Some appoint board mem-bers to check that company decisions support human rights, environmental goalsand conservation projects, for example, to demonstrate that the organisation standsfor something beyond the usual commercial goals. Sir Richard Branson, who headsup the Virgin group of companies, supports a wide range of non-commercial activi-ties, including supporting AIDS work and wildlife and habitat conservation in Africa.Finding himself in a position of power and influence after working hard to establisha profitable set of companies, he is keen to fulfil his lifelong ambition of trying tochange the world. He explains: Id always thought that Virgin should be more thanjust a money-making machine, and that, as Virgin has the wealth of a small nation,we should use that wealth to tackle social issues ... Companies do have a responsibil-ity to tackle them (Branson 2003, p. 529).Fromanoperationsperspectivewetendtobelessconcernedwiththetypeoforganisation or the sector in which we are working and more concerned with thetype of process we are managing. Different processes provide us with different benefits and also different chal-lenges. Extremely flexible processes may be excellent for responding to a widerange of special customer requirements but may be quite costly to maintain. Onthe other hand, processes suited to delivering high-volume low-cost services areusually not very flexible. A simple example drawn from the hotel industry illus-trates the differences: A five-star hotel prides itself on providing a wide range of services for its guests.Staff at the reception desk are prepared to spend time dealing with each cus-tomersrequestandendeavourtoanswereveryquestion.Asaresult,eachtransaction is quite lengthy and the hotel employs extra staff to ensure that thehighest levels of service are achieved at all times for guests, who are paying pre-mium prices.1.4.71.5 Different types of service processes Chapter 1 |Introduction to service operations management23 A budget hotel provides basic, reasonably comfortable accommodation for trav-ellers normally staying for one or two nights. In this case, reception processes aredesigned to carry out only the basic check-in and payment activities as quicklyas possible. Guests are not encouraged to request extra services and the numberof receptionists are maintained at the minimum level to keep costs low.Operational process design is influenced by two key parameters: the volume oftransactions to be performed per period per unit, and the variety of tasks to be car-ried out by a given set of people and processes (we will discuss these in more detailin Chapter 6.)The budget hotel reception process is close to the commodity position (lowprocess variety/high volume) in Figure 1.4. Processes here are clearly defined, leav-ing little room for individual customisation. Many consumer services employ thesetypes of processes, having benefits of consistency as well as economy. Other exam-ples include many call centre processes and retail activities. We have termed thesecommodity processes because there is little differentiation between services. They,however, have the benefit of delivering a clear service offer. A customer knowsexactly what to expect when purchasing a Big Mac from McDonalds.At the other end of the spectrum, we find capability processes. Processes herehave much less definition, with each task potentially significantly different from itspredecessor. The reception activity in the five-star hotel is probably closer to thisposition rather than the commodity position of the budget hotel. The service offeris likely to be far less defined than the Big Mac and the have-a-nice-day servicethat goes with it. In fact, many customers will be buying the ability of the serviceorganisation to work with them to clarify the need or problem to be solved andthen to develop a customised solution. Some professional service providers, such asFigure 1.4 Four main types of service processesLow HighVolume per unitHighLowProcessvarietyCommodity SimplicityComplexityIncreasingprocessdefinitionDecreasing unit costsMany processes lie close to thiscapabilitycommodity spectrumCapability Part One |Introduction24consultants, will work in this way, although larger, global professional service firmsoften adopt a relatively standardised way of working, implementing pre-packagedsolutions, which places them closer to the bottom right corner of Figure 1.4.Table 1.3 summarises some of the key differences between capability and com-modity processes.We have provided examples at each end of the capabilitycommodity spectrumfrom similar sectors to demonstrate that not all services within a broad sector willemploy the same processes. In Chapter 6 we will return to the challenge faced bymany services, which is that they must operate in more than one position on thisvolumevariety matrix.There are two off-diagonal positions also identified in Figure 1.4: Simplicity(lowvariety/lowvolume).These include small operations such asmicrobreweries, and small and specialist consultancies. Some larger organisationsmay also develop simple operations as start-up services, which then may grow interms of volume or variety or both (we refer to this as an incubator in Chapter 6). Complexity (high variety/high volume). At first sight, this position might seemto be the ideal, providing maximum flexibility for as many customers as possi-ble. In reality, however, providing flexibility for large numbers of customers isinvariably expensive, achieved by employing large numbers of highly skilledpeople and/or high-tech equipment.Table 1.3 Capability versus commodity processesCapability CommodityExamples Luxury hotel Budget hotel chainManagement guru Software package training providerCorporate lawyer House conveyancerBuilder of architect-designedGarden shed erectorluxury homes Motor insurance providerAviation insurance brokerProcess style Flexible processes allowing for wideRelatively rigid processes focusedrange of outcomes and approaches on narrow range of outcomes and proscribed approachesService offer Ability to diagnose customer needsAbility to provide an economical and and to develop a customised solution consistent service to meet the needs of many customersWhat do they do well? Flexible, innovative and responsiveLow cost, with consistent quality to individual customer needs and often rapid responseMajor challenges Co-ordinating the response ofDelivering consistently acrossindividual employees multi-sites and many providersMaintaining differentiatedEmployee morale and ownership of competencies to justify premiumprocess and customerprices Managing innovationManaging productivity Managing large numbers of staff Making best use of highly skilledand customersand knowledgeable individuals Chapter 1 |Introduction to service operations management25One of the challenges for service operations managers is to ensure that the type ofprocess is appropriate to deliver the service concept (Chapter 2). As service conceptschange and evolve, existing processes may become less appropriate for the task inhand. Effective managers will recognise this issue and proactively develop newprocess designs to meet the future requirements.We hope that it is becoming clear that service operations managers have an impor-tant and responsible role: They are responsible for a large proportion of the organisations assets. They are responsible for delivering service to the organisations customers. They have a significant impact on the success of an organisation.The success of service operations managers is not simply about performing a goodtechnical task, such as educating a student, delivering a project on time, or provid-ingasafariholiday.Successisalsoaboutmakingawidercontributiontothesuccess of the organisation, in particular: providing customer value delivering brand values making a financial contribution to the organisation delivering an organisational contribution.Ideally, of course, we would like to see all four types of contribution throughout theorganisations operations, but this is unlikely. What is important is that the serviceoperations manager is clear about the specific role each part plays at the present,and also how this contribution might change in the future.Customer valueCustomer value has a range of components. Customers may recognise value: when they receive something that they cannot do for themselves, such as gener-ating electricity or carrying out surgery when they receive a service that they do not have the time or inclination to per-form for themselves; for example, ironing shirts, shopping or arranging holidays when there is a reduction in perceived risk; risk might be perceived at a highlevel, such as the value of a business transformation consultancy, or at a lowlevel, such as knowing that a train is likely to arrive on time through a psychological or emotional advantage of dealing with a particularservice provider; for example, a woman may value the service of a doctors prac-tice because a female doctor is available from the status that they feel results from dealing with some service providers;for example, being able to tell their friends that they dine at the most prestigiousrestaurants or holiday in exotic locations.1.6.11.6 Judging the success of a service operation Part One |Introduction26A problem for service managers is that the customers idea of what represents valuefor money may well vary from customer to customer and shift through time, andeven from day to day. At the most basic level, the economising customers willthink of value as getting more for their money. Other customers may be preparedto pay more in order to receive a higher service specification. Still others will valuethe psychological value in being able to say that they are able to afford to be cus-tomers of high-status services (even though the specification may be no better thana lower priced service). The service operations manager must be aware of the fullrange of influences on the customers assessment of value. A key element in thisunderstanding is the relationship between the service brand values as communi-cated to the customer and the potential mismatch in terms of customer experience.Brand valuesAs indicated in the previous section, service organisations are paying close atten-tion to the link between service delivery and desired brand values (see for exampleBox 1.5 on Lexus). Pringle and Gordon (2001) outline three imperatives for whatthey term the brand promise: to create the brand to convey the brand to keep the brand.They argue that brand promises must be kept at four levels: The rational level: the need to demonstrate and deliver desired customer experi-ences and outcomes. The emotional level: the need to develop psychological benefits. The political level: the need to manage ethical and environmental issues. The spiritual level: the need to relate to peoples higher order needs.Service operations must therefore consider how to build processes to deliver thebrand valu