Service Operations Management:

Improving Service Delivery 3rd Edition

Robert Johnston and Graham Clark
FT Prentice Hall 2008
ISBN: 1405847328, 552 pages

Theme of the Book

The focus of the book is service delivery and the objective is to help
managers understand how service performance can be improved by studying
service delivery and associated management issues in the service sector.
This sector includes organizations in, for example, the public sector, voluntary
sector, mass transport services, professional services, business-to-business
services, retailers, internet services, tourism and hospitality. The same
principles also apply to the provision of internal services such as personnel
and IT.

The book is intended as a textbook for those who want to build on knowledge
of the basic principles of operations management. It can also serve as a
handbook for operations managers in service organizations as they seek to
develop and implement operations strategies

Service Operations Management

Key Learning Points

Operations management is the art of creating and delivering value.
Service and service delivery can be a competitive weapon.
The service package is a combination of the service experience and the
service outcome.
The service concept focusing on experience, outcome, delivery mode,
and value - is central to understanding customer requirements and
focusing operations on those areas that have most impact on the
customers perceptions.
The ultimate test of service operations management is at the point of
delivery to the customer and the aim is to delight customers within
budget and at a profit not easy!
Satisfaction is the result of customers assessment of a service based on
a comparison of their perceptions of service delivery with their prior
expectations.
Service quality factors are those attributes of service about which
customers may have expectations and which need to be delivered at
some specified level.
Service operations managers need to be able to manage the total chain
of processes, which link together to deliver the service to customers or
end users.
It is possible for a service organisation to invest in meticulous process
design and expensive technology but, having failed to invest in its

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people, it will not achieve the expected levels of customer satisfaction

Managers need to try to understand the chains of cause and effect
between their operational drivers and business performance so that they
know how to get the most effective response from their limited resources.
The service performance network is a framework to help managers do
this.

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Contents

PART ONE: INTRODUCTION

1. Introduction to service operations management
2. The service concept
PART TWO: CUSTOMER AND SUPPLIER RELATIONSHIPS
3. Customer and supplier relationships
4. Customer expectations and satisfaction
5. Managing supply relationships
PART THREE: SERVICE DELIVERY
6. Service processes
7. Service people
8. Resource utilisation
9. Networks, technology and information
PART FOUR: PERFORMANCE MANAGEMENT
10. Performance measurement and management
11. Linking operations decisions to business performance
12. Driving operational improvement
PART FIVE: MANAGING STRATEGIC CHANGE
13. Service strategy
14. Service culture
15. Operational complexity

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Service Operations Management

1. Overview of Service Operation Management

Services operations management is the term that is used to cover the
activities, decisions and responsibilities of operations managers in service
organizations.

1.1. What is service operations management?

Services operations management is concerned with delivering service to the
customers or users of the service. It involves understanding the service
needs of the target customers, managing the processes that deliver the
services, ensuring objectives are met, while also paying attention to the
continual improvement of the services. As such operations management is a
central organizational function and one that is critical to organizational
success.

1.2. What is service?

Customers will judge the quality of the service on the basis of both the
experience as well as the outcome. It is the role of service operations
managers to manage and integrate both of those elements which together
constitute the organisations service package viz.
Service experience: the customers direct experience of the service process and
concerns the way the customer is dealt with by the service provider
Service outcome: the result for the customer of service delivery.

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1.3. The service concept

The service concept is a critical element in knowing and defining what the
organisation is selling and the customer buying. The critical objective is to
ensure that what the organisation thinks it is providing correlates closely with
what customers think they are receiving.
As products and services are becoming more and more similar and as it
becomes easier for organisations to copy others products and services,
organisations are increasingly gaining competitive advantage through their
total service concept.
The service concept is defined as a shared understanding of the nature of
the service provided and received which should encapsulate information
about:

The organising idea: The essence of the service bought, or used, by the customer
The service experience: Which concerns the way the service provider deals with the
customer
The service outcome: The result of the service for the customer
The service operation: The way in which the service will be delivered
The value of the service: The benefit that customers perceive to be inherent in the
service weighed against the cost of that service.

Its value lies in bringing together the various elements of the service the
operational elements, marketing emphasis and customer requirements to
produce a meaningful overarching service definition in sufficient detail to
provide a working service specification. A clear statement of what the
customer is buying provides the focus for operational performance criteria and
the identification of the key operational areas and the starting point for the
development of an operations strategy.

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1.4. Service value

To understand value, the costs to the customer have to be weighed against
the benefits they perceive in the service. The task for operations is to find the
Understanding and delivering

right balance between maximising the value

perceived value is central to

for customers and minimising the cost to the

creating competitive advantage.

organisation.

It is important to emphasis that the ultimate judge of value is the customer.

The real test is perceived value whether the customers feel that they are
receiving value, based on their own often intuitive and intangible criteria. The
service concept is central to understanding customer requirements and
focusing operations on those areas that have most impact on the customers
perceptions.

2. Customers and Supplier Relationships

Customers can be classified in several different ways viz.

External versus internal customers
Intermediaries versus ends users or consumers
Stakeholders, payers, beneficiaries or participants
Valuable and not-so-valuable customers.

Operations managers need to:

Recognise the different types of customer
Understand the value of those different customer types
Understand the different nature and needs of each group of customers
Try to retain valuable customers
Develop appropriate relationships with customers.

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Segmentation is a first critical step in developing relationships with customers

enabling the organisation to understand the needs of particular targeted
groups and frame the service package to satisfy those needs.

2.1. Customer retention

A key task for operations managers, particularly in for-profit organisations, is
retaining valuable customers and building long-term customer relationships.
Capturing the lifetime spending of an existing valuable customer is much less
costly than attracting new customers. Loyal and valuable customers are
created by providing a level of service that satisfies or even delights
customers.

2.2. Managing customer relationships

Relationship marketing is about establishing, maintaining and enhancing
relationships with customers for mutual benefit rather than seeing any and
every service as a one-off transaction.
Two main forms of relationship are postulated:

Product relationships: which involve the capture of the customer using a variety of
products e.g. loyalty schemes, frequent-flyer programmes, club cards etc and found
particularly in higher-volume operations.
Personal relationships: exist in many professional and low-volume, high-margin
services, where there is time and value in developing one-to-one relationships with
clients and customers and often involve key account management (KAM) approaches.

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The notion of relationship marketing, however, is not appropriate in every

situation. For example, in commodity-based services many customers may
be more influenced by value for money than by a concept as intangible as a
relationship. On the other hand, in many business-to-business markets
relationships are close, complex and long-term.

2.3. Customer expectations and satisfaction

It is no accident that many of those companies that have a reputation for
excellent service spend time and money in listening to customers.
The purpose of trying to understand customers expectations is to try to
ensure that service can be designed and delivered in order to meet those
expectations. If operations meet those expectations then customers are
satisfied with the service. Satisfied customers are more likely to become
valuable customers who not only use the service again but may even
recommend it to others.

2.3.1. Customer satisfaction

Satisfaction is the result of customers assessment of a service based on a
comparison of their perceptions of service delivery with their prior
expectations. If customers perception of the service matches their
expectations then they should be satisfied.
Thus expectations and indeed perceptions are key components in delivering
quality service.
Consumer research has shown that excellent service is about doing two main
things:

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Delivering the promise: this is about consistently doing what you say
Dealing with problems and queries: this is about service recovery
Plus:
Providing a personal touch: this is about treating the customer as an
individual
Going the extra mile: this is simply about providing some small extra
touches that the customer really appreciates.
It is important to realise that excellent service can be delivered by a fullservice provider or a no-frills provider. Customers can be delighted by any
organisation that does what it says and, when something does go wrong,
sorts it out.
Organisations need to understand expectations and, if appropriate, manage
those expectations to keep them, as far as possible, at the right level that can
be met or just exceeded by service delivery. This is a key challenge for
service operations managers.

2.3.2. Service quality factors

Service quality factors are those attributes of service about which customers
may have expectations and which need to be delivered at some specified
level. Many potential factors have been identified including, for example,
access, availability, courtesy, flexibility, functionality, responsiveness et al.
Although they may vary from customer to customer, service quality factors
can be divided into four groups in terms of their ability to dissatisfy or delight
viz.

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Service Operations Management

Hygiene factors: these need to be in place to avoid dissatisfaction but they are
unlikely to be a source of delight.
Enhancing factors: have the potential to delight if they are present, but there
absence is unlikely to dissatisfy the customer.
Critical factors: have the potential to both delight and dissatisfy.
Neutral factors: have little effect on satisfaction

Managers must know which factors will delight and which will dissatisfy in
order to manage the creation of satisfaction during the service process.
Service quality factors provide a base for understanding and defining
customer expectations (whether internal or external), defining appropriate
levels (i.e. create the quality specification) and also measuring customer
satisfaction.

2.4. Managing supplier relationships

This concerns the management of the relationships involved in service
delivery to the end customer.

2.5.1. The Service Supply Chain

Supply chain management (SCM) is concerned with managing the flow of
information, materials, and services through the network of suppliers, internal
and external, serving the ultimate consumer.
The essential exchange mechanism is more accurate information about
expected demand passed in appropriate format to upstream suppliers thus
allowing them to manage their production with minimum cost. The theory is
that the benefits of increased competitiveness will be shared equitably
between the partners in the supply chain.

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The benefits of SCM include:

Reduction in the total cost of inventory held by the chain as a whole
Reduction in administrative overheads involved in managing multiple relationships
Collaboration in scheduling and in process improvement, leading to higher service
levels and quality improvement
Faster response to changes in the market demand.

3. Service Delivery

3.1 Service processes

Processes are the lifeblood of the service operation. A good process ensures
that service is delivered consistently, time after time. Excellent service
which satisfies the customer and meets the strategic intentions of the
organisation is usually the result of careful design and delivery of a whole
set of interrelated processes. Service providers that consistently meet both
cost and quality targets manage the chain of processes from start to finish
rather than simply the final stage of delivery to customers.
A service process comprises many interrelated processes, some of which
predominantly process customers, others information and others materials.
Many tasks will be located in the back office remote from customers, while
other front office tasks and activities take place in the presence of the
customer at a variety of locations.. Together these processes in an
appropriate sequence create the service experience and deliver the service
outcomes.
Service operations managers need to be able to manage the total chain of
processes, which link together to deliver the service to customers or end
users. Poor service often emanates from a lack of coordination between

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activities. Failure to manage end-to-end processes leads to inefficiencies

across the organisation that comprise the service supply chain, leading to lack
of consistency, poor reliability in terms of quality and lead-times, and
increased cost.

3.1.1. Engineering service processes

The key to good service design is about taking a customer perspective and
understanding the whole service process. Several tools and techniques have
been developed to design new processes or assess and improve existing
ones viz

Process mapping (for front and back office processes)

Walk-through audits (for front office processes)
Service transaction analysis (for front office

3.1.2. Controlling service processes

A key operational performance objective is to achieve consistency of outcome
for customers most service organisations report that reliability is one of the
most significant factors in influencing customer satisfaction in other words
saying what you do and doing what you say. Many service operations utilise
the statistical process control (SPC) methodology to assess the extent to
which a process is capable, or in control. Quality systems such as ISO 9000
are also useful in focusing on the development of quality management
systems that have the objective of creating processes that reflect customer
requirements and are sensitive to changing market conditions.

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3.2. Service people

From a customer perspective, the difference between a mediocre and an
excellent service experience lies more often than not with the person who
serves them their immediate point of contact. The person embodies the
service and the customers perception is influenced to a large extent by the
way they view this interaction.
It is possible for a service organisation to invest in meticulous process design
and expensive technology but, having failed to invest in its people, it will not
achieve the expected levels of customer satisfaction. Moreover, employees
will not be motivated to own and improve service processes to deliver required
levels of quality and productivity.
Managing service providers is an important task because these people,
individually and collectively, have a crucial role viz.
they are responsible for delivering service to their customers (whether internal or
external);
they usually form a significant element in the service experience;
employees represent significant resource for many service businesses and frequently
represent the largest variable cost to the organisation; and
the essence particularly of professional services lies in the skills, capability, and
knowledge of the people who are in a real sense the service - in terms of the blend of
their expertise and chemistry with the client that the customer id buying.

Service managers must seek to motivate and support employees by providing

inspirational leadership, harnessing the power of teams and teamwork across
the organisation, and clarifying the roles of service providers. .The
organisations overall culture the way we do things round here will also
have an impact on the quality and effectiveness of the organisations service
offering.

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3.3. Resource utilisation

Making the most effective use of operational resources materials, staff,
equipment and process technology - is at the heart of service operations
management and has a major impact on both operational costs and customer
satisfaction.

3.3.1. Capacity management

Managers are concerned with ensuring that the service process has sufficient
resources to deal with the anticipated levels of customer demand in such a
way that quality of service meets pre-set targets in the most cost-effective
manner. This is a delicate balancing act because both underutilised and
overstretched resources can
be disadvantageous. The task of capacity management is to try to achieve a
balance between too much and too little resource utilisation. Capacity
management is concerned with putting a plan in place that makes the best
use of resources given the forecasted or expected demand for services.

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4. Performance Management

4.1. Performance measurement

Two useful tests of a performance measure are:

Purpose:
Four main purposes
Communication: a measure informs employees as to what the organisation requires
them to strive for
Motivation: the measures used by an organisation influence employee actions e.g. if
speed is measured but not quality, quality may be compromised for the sake of speed.
Control: provision of feedback so that action can be taken to keep a process in
control
Improvement: providing information about how to manage better the process
involved.

Systems: what systems are in place to support or achieve the purpose?

An interesting question to ask is: looking

at the set of measures used by an

Organisations need to evaluate their

performance on a range of measures,

operation, would its customers

not purely financial or indeed

measure its performance in the same

operational. Financial performance

way? Measuring what is important to

measures would include share price,

customers can easily be overlooked by

ROCE, costs and profits. Operational

organisations

performance measures would include

speed, productivity, equipment utilisation and staff absenteeism. External

data would include market share figures, customers lost, customer
satisfaction. Developmental needs of an organisation to learn, change and

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develop would be assessed through for example the quality and extent of
training, research, communication, problem identification and problem solving.
By using knowledge about the relationships between operational, financial,
external and developmental performance measures organisations can
become systematically smarter.

4.1.1. Target setting

Target-setting is a key element of driving performance improvement there is
evidence to suggest that performance improves when clearly defined targets
are provided. Operations managers need to decide how targets will be set to
support process improvement, control communication and stimulate
motivation. There are essentially three types of targets viz.

Internal based on past performance of the process under consideration;

External based on comparison with other organisations e.g. best in class benchmarks;
Absolute i.e. processes which need to be run with zero defects or 100% adherence to
standard e.g. life support systems which may fail in practice with serious consequences
but for which their operational targets are absolute.

To motivate employees to try to reach a target level of performance it is

essential that operators have some control over the variables that affect the
performance and also it helps if they have had a role in negotiating what that
target should be i.e. what they think is achievable. This approach encourages
employees to address questions such as how can you improve what you are
doing? How can you improve the process by which you are doing it?

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4.1.2. Rewards and penalties

Organisations need to decide what rewards/penalties will be associated with
the achievement of their chosen targets. If rewards linked to targets are to
work as intended, they must be clearly perceived as sufficient to justify the
additional effort to obtain them, directly related to the required performance,
perceived as equitable, and must take into account the complexities of
individual versus team-based effort.

4.2. Driving operational improvement

One important aspect of performance management is performance
improvement focusing on two key elements:
what adds value for customers and the organisation
how to mobilise service employees to contribute to the improvement
process.
Approaches employed include TQM, Six Sigma, BPR, Lean Thinking, and
Benchmarking. Organisations also need to have service recovery procedures
to deal with things that go wrong including excellent complaint handling.

4.3. Linking operations decisions to business performance

Managers need to try to understand the chains of cause and effect between
their operational drivers and business performance so that they know how to
get the most effective response from their limited resources. The service
performance network is a framework to help managers do this.

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4.3.1. The service performance network

The service performance network is the combination of two networks: the
results network and the drivers network and the relationships between them.
The results network includes, for example, the following relationships viz.

Improved customer satisfaction can have a positive impact on financial performance

Customer satisfaction has a positive impact on customer retention.
Customer retention and loyalty have a direct impact on profitability
Organisations may attract new customers through recommendation from existing
satisfied customers
Greater staff satisfaction leads to greater customer satisfaction.

The drivers network includes the following key operational drivers:

Process

People
Resources
Networks, technology and information

Research evidence suggests that the better an organisation manages its

drivers, the better will be its results, including market share, customer and
staff satisfaction, and profit.

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AUTHORS

GRAHAM CLARK is a Senior Lecturer in Operations Management at

Cranfield School of Management and Director of the Executive MBA
Programme. He has substantial experience of working with international
organisations across a wide variety of sectors.

ROBERT JOHNSTON is Professor of Operations Management at Warwick

Business School. Currently academic director of the Warwick Diploma in
Service Leadership, he provides advice to a wide range of private and public
organisations, drawing on his global experience in executive development
with leading companies.

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Cranfield School of Management

Produced by the Learning Services Team

Cranfield School of Management

Cranfield University 2008