Service Operations Management

By Prof. (Dr) Satish C Ailawadi

Senior Professor-Operations & SCM
Vignana Jyothi Institute of Management

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 Introduction- What are Services?
• The scope of service operations covers all operations that deploy resources to
deliver some form of services.
• These may include:
(a) Business to Consumer services
- B2C services are provided by organizations to the individuals
- Examples are financial services, retail services, travel services, leisure
services, hospitality services etc.
- A subset of B2C services are those organizations which facilitate
communication and service provision between customers sometimes
described as C2C services
- Examples are social networks such as Facebook, business network such as
LinkedIn, video sharing sites such as You Tube, peer to peer games such as
Farmville and Café World, and buying and selling sites such as ebay.

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(b) Business to business services
- B2B services are services provided between businesses
- Examples are consultants, office equipment provision and support,
communications, corporate travel services, business insurance, finance
and legal sevices.
(c)Internal services e.g. personnel, information technology (IT), HR,
payroll, security services etc
- Sometimes organizations subcontract or outsource such services so they
become B2B services
(d) Public services sometimes referred to G2C –Government to Consumer
services
- Examples are all services provided by local, regional and central govt. to
their citizens and communities such as police, education, welfare and health
services
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(e) Not-for- profit or voluntary services include services provided by NGOs
e.g. charities, religious/spiritual organizations, sports clubs, and aid
organizations
• All manufacturing organizations also provide services such as customer
support through provision of after sales services, customer training,
Human resources, Information Technology, and B2B services in their
Supply Chain

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 Complexity of Services
• Service means many different things to different contexts
• To some it is synonymous to handling customer complaints or customer care
• To others it is equivalent of logistics function or internal services such as
accounting or human resources
• It is extremely difficult and complex to describe something that accounts for 75%
of the economic activity of any developed nation.
 Example of an hospital
• Varieties of service operations that must be coordinated and linked together in
order to deliver healthcare to their customers
• Reception services, diagnostics, pharmacy, operation theatres, restaurants,
physiotherapy, security, finance & accounts, insurance and so forth are the
processes (activities) provided to the patients and members of the staff.
• Complexity may increase due volume of patients and wide range of treatments
available
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• From the customers’ perspective, service is the combination of the
customers’ experience and their perception of the outcome of the
service.
• Outputs of the various processes is cured patients, and knowledgeable
operators
In a Theme Park, the experience includes the rides and the restaurant,
and the outcomes include food and drink, the emotions of enjoyment
and their view of value for money at the end of the day.
• Customers are also expected to provide certain inputs to the service.
Inputs include their time and effort plus the price the pay for the
service

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Service Provided and received
Service provided

OPERATION

INPUTS
Materials
Equipment
Customers OUTCOMES
PROCESS Products
Staff
Technology Benefits
Facilities Emotions
EXPERIENCE
Judgements
Intentions

CUSTOMER

Service received

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• The primary reason why customers are paying for or using an organization’s
services is to receive the service product.
 Examples of service products may include:
(a) Car insurance
(b) Consultancy advice
(c) A restaurant meal
(d) A computer maintenance
(e) Healthcare

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• From operation’s point of view, service provided is the service process and
its outputs which have been designed, created and executed using input
resources including customers.
• In certain cases, customer also takes part in the service process though to a
limited extent
 For example, diagnostic and surgical services are co-created or co-
produced along with the customer.
• From customer’s perspective the service received is their experience of the
service provided which results in various outcomes.
• Service experience and service outcome is referred to as a service product
or a service package

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 The Customer Experience
• Customer’s direct experience of the service process and concerns the way
the customer is dealt with by the service provider.
• How customer-facing staff interacts with customers ?
• How is Customer’s experience of the organization and its facilities ?

Customer’s experience of an organization as a whole starts much before

he/she interacts with the organization

Customer’s expectations are shaped by sales and marketing activities

and word-of-mouth advertising from existing customers.

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Various aspects of service experience include:

(a) The degree of personal interaction,

(b) The responsiveness of the service organization
(c) The flexibility of customer-facing staff
(d) Customer intimacy
(e) The ease of access to service personnel or information systems
(f) The extent to which the customer feels valued by the organization
(g) The courtesy and competency of customer-facing staff
(h) Interactions with other customers

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 The Service Outcome
• Service outcome is the result for the customer of service process and their
experience
• The key outcomes are:
(a) Products,
(b) Benefits,
(c) Emotions,
(d) Judgements, and
(e) Intentions

• Service experience and service outcome is referred to as a service product

or a service package
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 Products
- Functional output of the services provided, such as
(a) Food and drink provided by the restaurant
(b) Ability of a delegate on a training course to construct a spread sheet
(c) New heart for the heart operation patient
 Benefits
- Means how the customer perceives they have profited or gained from the
service/product provided
(a) Patient who has undergone heart operation will benefit from longer and
more active life
(b) Students who have performed well will have better job prospects
(c) Use of consultants may lead a firm to reduce costs and increase
commercial success
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 Emotions
- Experiencing a service result in the customer feelings and emotions
(a) Joy
(b) Surprise
(c) Love
(d) Fear
(e) Anger
(f) Shame, and
(g) Sadness
- In a hospital a patient experiences a well managed stay , felt at ease with
minimal pain and inconvenience
- In a college a student has enjoyable and challenging experience with
memorable lectures , seminars and exciting extra curricular activities.
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Judgements
- Opinions that are formed as a result of customers’ feelings about their
experience and output
- These judgements will include views about fairness, satisfaction, or
loyalty

Intentions
- Judgements : good, bad or indifferent will result in intentions
- Intentions:
(a) to repurchase or not,
(b) to recommend to others,
(c) to complain or not
- These intentions may or may not result in action.
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There are some important outcomes from the organization’s perspective
- A hospital may have clinical targets such as:
(a) Waiting times,
(b) Number of operations carried out
(c) Recovery rates
- Operational targets, such as:
(a) Usage of operation theatres
- Financial targets
(a) Adherence to the budgets
Success of a service operation has to meet both desired customer
outcomes and organizational outcomes.

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 Products, Services and Value
• Most organizations provide a combination of products and services.
• Manufacturers of washing machines or cars not only make the machine, they
also provide after-sales services such as servicing and repairs
• Service such as restaurants ‘manufacture’ food and restaurant will be of no
value without it.
• Consultants provide tangible reports but main value is their diagnostic and
advice services.
Many product based organizations see ‘service’ as a means of differentiating
themselves from competition
For instance Amazon initially a bookseller is now a global retailer gained
advantage over traditional booksellers by allowing customers to buy online,
store their delivery address and credit card details to allow one click future
purchases, receive suggestions and read reviews, all from their laptop or
phone, wherever they might be. 17
 Servitisation
• A business model in terms of complete product-service offerings and
changing paradigm of product-based organizations is referred to as
‘servitisation’.
What is more important to customers- the product or services?
What is product?
Is Amazon a product or a service organization?
• The critical point is about the value that is delivered to the customer
• From car manufacturer’s point of view a vast amount of value (cost) is
tied up in the product and paid for by the customer (value in exchange)
• From customer’s point of view, its value is in its use (value in use)
• Having a car allows us to go where we want, when we want, in relative
comfort, listening to what we want to listen to.
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• Value is created in the experience and outcomes at the point of consumption
• Customer has a significant role in value creation in services.
• How a customer uses and maintains the car has an impact on how he values it
• How well the staff co-operate with the firm of consultants may affect their
ability to do their job
• How well a patient explains the symptoms to the doctor will aid his/her
recovery.
The role the customer plays in service delivery is referred to as ‘co-production’
or ‘co-creation’.

• Besides managing materials, technology, people and processes, the service

operations managers also have to manage the customers as a resource.

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 What is Service Operations Management?
• Concerned with providing services, and value to customers or users

• Ensures that the customer’s get the right experiences and the desired
outcomes

• Involves understanding the needs of the customers, managing service

processes, ensuring the organization’s objectives are met.

• Pays attention to continual improvement of services

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 Economic Contribution of Services
• At a macro level service activities are vital and significant part of most
developing and developed economies
• In most developed countries services account for more than 80 percent of
GDP and for over 50 percent of GDP in developing countries.
• Provide employment to significant number of people, notably in
(a) Tourism and leisure
(b) Hospitality
(c) Transportation
• These are people intensive sectors requiring different mixes of skilled and
unskilled labour
• Sectors like Banking and Financial services are more technology-based.
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 Strategic Challenges in Service Operations
• The key strategic challenges are:

(a) Managing operations tactically and strategically

(b) Making service operations contribute to strategy as well as its implementation

(c) Making business case for services

(d) Understanding the service concept

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 Tactical Challenges in Service Operations
• The key tactical, day to day challenges include:

(a) Understanding the customer perspective

(b) Managing multiple customers

(c) Managing in real time

(d) Co-ordinating different parts of the organization

(e) Encouraging improvement and innovation

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Service The Operation’s (inside-out) perspective

Inputs Processes Outputs

Surgery GP, nurses, surgeon, bed, Diagnosis, operation, Hip replacement

operation theatre aftercare

Education Lectures, library, computes, Timetable scheduling, Information, course pack,

seminar halls lectures, exams, results degrees

Consultancy Consultants, information, Data collection and analysis Presentations, reports

skills, knowledge

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Service The customer’s (outside-in) perspective

Experience Products Benefits

Surgery Empathetic and pain-free A working hip Greater mobility

treatment

Education Memorable and useful Knowledge, confidence and Better job prospects/
lectures and seminars skills capability

Consultancy Helpful and timely Solutions Reduced costs and greater

discussions and advice commercial success

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Managing Multiple Customers
• Many service organizations do not serve a homogeneous group of customers
• For instance, in context of hospital : the patient, the attendants/relatives who
accompany the patients, health and safety officials etc.
• Internal customers-the staff-whose welfare and training needs have to be take
care of
 Managing in real time
• As the customer is the input and involved in the process, many services
happen in real time. It cannot be delayed.
• For instance, a passenger wanting to purchase a ticket for immediate travel
may not be wiling to return if the travel agent is busy.
• Similarly, streams of aircrafts coming to land cannot be easily put on hold
while equipment is serviced or air traffic controllers take a break.
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• During a service encounter it is not possible to undo what is done or said
• For instance, things said in the heat of a moment or promises made that
cannot be kept.
• Unlike in the manufacturing organizations where it is possible to scrap
defective products and remake them, in service there is no ‘undo’ or ‘rewind’
button.
 Co-ordinating different parts of the organization
• Service operations managers are responsible for co-ordinating various parts
of the organization in the delivery of services that includes:
(a) Understanding the needs of the customers
(b) Overseeing the logistics of the supply chain to ensure that all materials and
equipment are in the right place at the right time and the services are
delivered appropriately.
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Encouraging Improvement and Innovation
• Another challenge in services is how to continually improve and innovate
their processes and customer’s experience
• Improving the operations imply about taking what exists and developing it
• Innovation looks for what is not there i.e. what is new
• Innovation usually requires an element of risk, financial risk because
innovations require time and money
• It also involves personal risk as a change agent
• The challenge is to be alert, and seek out, new ideas and have necessary will
to follow through appropriately.

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 Types of Services and their Key Challenges
Business to Business (B2B) Business to Consumer Internal Services Public Services (G2C) Not-for-profit Services
Services (B2C) Servvices

Description Services provided for Services provided for Services provided by Services provided by the Services provided by non-
businesses individuals internal functions within central or local government organizations
the organizations government (NGOs) or charities

Examples Maintenance, Consultancy, Shops, Hotels, Banks, Finance, Purchasing, IT, Prisons, Police, Aid agencies, Counselling,
Training, Catering Food Personnel Hospitals, Education, Education Trusts, Religious
Leisure Organizations

Customers Professionals who are not Individual consumers Users who have no Citizens who may have Beneficiaries are self-
necessarily the end users choice and frequently little day to day choice, selecting or chosen
funded by the central funded through taxation recipients, funded through
budget with allocation of individual and
resources influenced by organisational giving
political processes

Key Challenges Providing high-quality Providing consistent Demonstrating value for Balancing the various Dealing with differences
services to business service to a wide variety money against possible political pressures and between volunteers, donors
customers who frequently and high volume of external alternatives providing acceptable and beneficiaries; dealing
have high purchasing power customers public services with emotional and
sometimes overwhelming
needs 29
 Different Services within the a Sector
• Every sector has its own set of challenges
• There can be significant differences between service operations within the
sectors
• May relate to the way organization has chosen to compete or which
customer segments are to be served
Low-cost airline Full-service airline
Business model High volume, low cost Global network, profit made on business travel
Network Short haul, with no connections to other Long haul, with connections to global partner
carriers airlines
Cabin services Basic, no food, no frills Range from economy to first class
Locations Secondary, low cost airports Primary airports to allow interconnections
Volume Multiple flights per route each day Range from three flights per day to one flight per
week for less popular destinations
Booking system Direct through own websites, and/or own Usually through travel agents or websites
contact centre 30
 Challenges for different types of processes
• Different processes provide different benefits and also have different
challenges
• Extremely flexible processes may be excellent for responding to a wide
range of special customer requirements but may be quite costly to maintain
• Processes suited to delivering high-volume low-cost services are usually not
very flexible
 Operational process design is influenced by two key parameters:
(a) Volume of transactions to be performed per period per unit, and
(b) Variety of tasks to be carried out by a given set of people and processes

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 Commodity (high volume and low variety)
• Processes are clearly defined, leaving little room for individual
customisation
• Many customer services employ these types of processes having benefits of
consistency as well as economy.
• These are termed commodity processes because there is little differentiation
between services.
• These have the benefit of delivering a clear service concept
• For instance, a customer knows exactly what product and service to expect
when purchasing sa Big Mac from McDonald’s

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 Capability (low volume and high variety)
• Processes consist of tasks where each task is significantly different from its
predecessor
• For instance, reception activity in the five-star hotel is closer to this position
as compared to commodity position of the budget hotel
• Quite often the service organizations work with the customers closely and
develop customized solutions.

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 Capability versus commodity processes
Capability Commodity
Examples Luxury hotel, Management guru, Budget hotel chain, Software package training provider,
Corporate lawyer, Builder, Architect for Garden service provider, Motor insurance provider
designer luxury homes, Insurance broker
Process style Flexible processes allowing for wide range Relatively rigid processes focused on narrow range of
of experiences and outcomes experiences and outcomes
Service offer Ability to diagnose customer needs and to Ability to provide an economical and consistent service to
develop a customised solution meet the needs of many customers
What do they do Flexible, innovative and responsive to Low cost, with consistent quality and often rapid
well? individual customer needs response
Major challenges Co-ordinating the response of individual Delivering consistently across multi-sites and many
employees providers
Maintaining differentiated competencies Employee values and ownership of process and customer
to justify premium prices Managing innovation
Managing productivity Managing large numbers of staff and customers
Making best use of highly skilled and
knowledgeable individuals
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Simplicity (low volume and low variety)
• Include small operations such as mom and pop stores, and start-up services
• These may subsequently grow in terms of volume or variety or both
 Complexity (high volume and high variety)
• An ideal position
• However providing flexibility for large number of customers is invariably
expensive
• Would require employing large number of highly skilled people and/or high-
tech equipment
As service concept changes and evolve, existing processes may become less
appropriate for task in hand.
• Need to develop proactively new process designs to meet the future
requirements

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 Service Concept
• It is an important way of capturing the nature of service so that customers know
what they are getting and the service providers understand what they are providing.
• Service concept can be used to help develop new services e.g. augmented hotel
services, ATMs of banks
• Service concept is a shared and articulated understanding of the nature of the
services provided and received, capturing the following
(a) The organising idea-the essence of the service bought, or used by the customer
(b) The services provided- service process, its outputs using various input resources
(c) The services outcomes- results of the customers’ experiences including products,
benefits, emotions, judgements, and intentions.

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Organization Wonder Ella Theme Park, Hyderabad

Organizing idea A great day out at a theme park in Hyderabad

Service Concept A great day out with friends or family at a theme park in Hyderabad that provides an inclusive package of over
100 rides and attractions to suit all ages and tastes with thrills, fun, fantasy, fast food and magnificent gardens

Services provided • Car parking • Fair queueing systems

• Transport to entrance • Shows and attractions
• Ticketing • Children’s rides
• Security • Food outlets
• Clean and tidy park • Toilets
• Uniformed and helpful staff • Street entertainers

Services received  Customer experience  Outcomes

• Easy parking & Good signage • Good food, 18 rides used & 3 attractions experienced
• Exhilarating & lots of rides • Fun day out with the family
• Full day out, Fun day, never a dull moment • Terrifying & thrilling rides
• Variety of food available • Good value for money
• Helpful staff • Want to go again 37
• Clean toilets • Will recommend to friends
Organization IT infrastructure Support Group

Organizing idea Helpful and dependable IT support for internal users

Service Concept Helpful and dependable helpdesk service, professionally managed, and reliable IT infrastructure (storage, servers,
network, internet) and expert advice to end users and business leaders at low total cost in accordance with set standards
and policies.

Services provided  End users • On call support by phone/email for critical problems 24 X 7
• Hardware and software support • Reliable infrastructure
• Training services • Responsive and effective call resolution
• Helpdesk available 8 x 7  Business leaders
• Phone/email support for non-critical problems • Monthly management meetings
8.00 A.M. to 6.00 P.M. • Monthly utilisation and satisfaction metrics
• Walk-in facility from 9.00 A.M. to 5.30 P.M. • Services within the budget and value for money
• At desk service available 9.00 A.M. to 5.30 P.M.

Services received  Customer experience: End users  Outcomes: End users

• Personalised, capable helpdesk, Informed about • IT problems sorted
issues & Fast recovery from failures • No service disruptions
• Good communications during failure • All critical services available ≥ 99.995%
 Customer experience: Business leaders • Highly satisfied users and high perceived value for money
• No surprises  Outcomes: Business leaders
• Professional technical advice • Planned infrastructure availability and expansion
• Genuine concern and understanding of business • Low cost of infrastructure and services within budget
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needs • Effective advice on increasing employee productivity 38
 Developing new service concepts to drive
innovation and provide strategic advantage
• Developing new service concept can drive innovation and provide strategic
advantage
For example, opening up new markets or differentiating the organization
from the competition
• Service concept provides a way to challenge the status quo
• A potentially new ‘organising idea’ allows a service operation manager
(a) To identify changes to processes, outcomes and experiences
(b) To assess viability/ desirability of new services
(c) To view the business in ways that can make it stand apart from other
organizations
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For example: An Airlines or Railways- One of the options
• One way to look at the business is in terms of performing merely its basic
function
• In this case transporting people from point A to point B, on time and at
the lowest possible price.
• This is called ‘Commodity mind set”
• Another way to compete is to go beyond the basic function and compete
on the basis of providing an experience.
• Make the process of flying from point A to Point B as effortless and
pleasant as possible.

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By identifying the market, the needs of the customer segment and
understanding the core competencies of the operation, managers can
develop totally new and innovative concepts that have unique appeal to
the customers and give a significant competitive edge to the
organization.

• Having articulated the service concept, operations managers need

(a) To design and acquire the resources (inputs)
(b) To design and develop the processes and experiences required to
deliver the concept to the organization’s customers.

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 How to define a Customer?
Service Operations Managers need to know :
(a) Who their customers are?
(b) What are the benefits of providing good services and retaining good customers?
(c) What are the services needed to manage multiple customers?

 The key element in B2B organizations is developing and maintain good relationships
with them.
 Quite often a ‘customer’ is the recipient and also a provider in a service process.
 Seemingly a two way process

• All individuals, units, or even the organizations to whom , and often with whom, an
individual, unit or organization provides service are referred to as ‘customers’.

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 Salient features of a Service Process
• Everyone in service process is a customer of somebody
• Some customers are individuals, some are units and some are organizations
• Service is usually a two-way process. Both parties are ‘customers’ of each
other as they are both recipient and providers
• Services are delivered through networks as service is delivered b many
organizations working together and providing each other with services
• There are internal service providers, such as the restaurant in the hotel, and
also external service providers such as their beverage supplier. Thus, there
are both external and internal customers
• Different organizations use different names for their customer; in airlines
the are called passengers, tour operators call it clients, for hotels it is guest
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 Classifying Customers
Customers can be classified into following broad and overlapping types:
(a) External or internal customers

(b) Intermediaries or end users or consumers

(c) Stakeholders: payers, beneficiaries or participants

(d) Valuable or not-so-valuable customers

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• Quality and the cost of service provided to external customers depends
upon the quality of the service provided to and by the network of
internal customers
• The level of external customer service will never exceed the level of
internal customer service.- This is referred to as “Internal Service Rule”
• Many organizations have recognized the importance of refocussing
‘putting customers first’ to ‘putting employees first’ realizing that the
level external service is constrained by the level of internal service.
• Often it is observed that it is the management’s internal policies,
procedures and practices that constraint the service provider’s ability,
and interest in delivering good service to the external customers.

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• Many organizations face the challenge of managing their direct
customers such as brokers or retailers, while at the same time
understanding the needs of the end consumers or users.
• Organizations also prioritise service towards customers who can create
the most value for the organization
• Given the resource constraints of every organization, any prioritization
must safeguard the long term business interests
 How do we define a valuable customer?
• Valuable customer is the one that is either of high value and/or valued
• While some customers are loyal, in the sense they frequently use the
organization, they may also have other loyalties and may not be very
profitable or helpful to the organization

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• High value means the financial value of the customer over the long term
is of value to the organization.
• Has a link with the idea of assessing lifetime value of a customer
• For instance, a customer with a monthly spend of Rs 5000 at Spencer’s
represents an annual spend of Rs 60,000 and life time revenue in excess
of Rs 30,00,000
• Studies have indicated that the service organizations which understand the
concept of lifetime value, have been able to treat customers with respect
and justify investment in customer service
• In some industries, the companies make a loss on the sale of original
equipment, knowing that 25 years of spares and service contracts would
ensure long-term profitability

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• Business to business services may have a reasonable idea about the
customer value that is represented by size of the contracts
• In some cases these organizations may have only one customer
• Consumer services may have more difficulty
• Financial services may be able to classify customers according to
(a) Socio-economic groups
(b) Credit ratings, and
(c) Spending habits
High value customers :
(a) spend more per transaction and purchase additional services that are of
strategic value
(b) may also act as an advocate for the organization encouraging others by
word-of- mouth
(c) May also be prepared to pay a premium price for the service
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• Valued customers are positively disposed to the organizations and can
create financial value for the the organizations
• They can be involved in cost reduction by taking time to help the
organization and its staff
 For example, clearing the tables after use or reporting incorrectly
functioning equipment
• Valued customers can be involved in revenue generation by providing
positive word-of-mouth advertising and by encouraging others to use or
support the service
• Valued customers are ready to help the organization to maintain and
improve its services
 For example, by completing questionnaires and providing suggestions

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 Customer segmentation- an operation’s view
• Market segmentation traditionally focuses on particular economic groups
or target a geographic region, lifestyles etc.
• Market segmentation helps the operations manager design their facilities
appropriately and provide the right service, experience and outcomes
 For example, a restaurant targeting couples on a romantic date , the
design of seating and ambience will be different from a restaurant that
considers families as its primary source of revenue
• The type of the food and the speed, and manner service is provided and
the information provided will be different
• In case of a family restaurant, easy-to-access facilities with flexible
seating will be required, together with value- for-money meals served
efficiently
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• The restaurant catering to couples on a romantic date will require different
furnishings, lighting, music, staff competencies and food
• Restaurants need to keep adapting to changing needs, providing classical
music and reasonably bright lighting for early evening family groups and
more elderly diners, moving to more upbeat music and dimmer lighting for
younger couples as the evening progresses
• Market segmentation drives the key decisions such as processes, resource
requirement and staff competencies

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 Customer Types
• The nature of customer can significantly influence:
(a) The type of service provided
(b) How they need to be dealt with by the staff, and
(c) Their potential impact on other customers in operation
• Customers can be categorised by behaviour or attitude
1. The Ally
• Usually arrive in a positive frame of mind
• Willing to help and give positive feedback to facilitate the service
• Ally’s opinion is respected by others
• If Ally is happy, then the other customers will infer that the service must
be good
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2. The Hostage
• These customers require services but may be ‘locked in’ to a particular
service provider contractually.
For instance, customers who must have their car serviced by the dealer
appointed by the manufacturer
• The service may cost rather more, but if an approved dealer is not used,
their warranty will be invalid
• Such customers may not be in positive frame of mind and will become
very difficult whenever service performance deteriorates
3. The Anarchist
• Normally customers dislike rules and systems
• Quite often the notices suggesting what should and should not be done
present a challenge
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• Customers try to ‘get away’ with not following a system but this may
create problems with other customers who feel they have not been treated
fairly.
4. The Patient
• Similar to Hostages as they are locked into the service, such as hospital
patients or students at school or university
• These customers may be positively or unequivocally oriented towards the
organization
• Willing to submit themselves to rules and regulations
• Unnecessary restrictions may turn them into Hostage or anarchist
5. The Tolerant
• Such customers may be passive, always waiting patiently for service
providers to acknowledge their presence and deliver the service
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• In fact, they become so patient that they become invisible to service staff
and as a result get ignored
• It becomes dangerous to trade on their goodwill
6. The Intolerant
• These customers are seldom passive and often cause stress and problems
within the service for themselves, service providers and other customers
• Though initially they may be positively disposed to the organization,
without careful handling such customers can easily turn into Terrorists
7. The Victim
• When something goes wrong in service organizations, some customers
always appear to bring bad news
• Victims tend to blow up the incidents out of all proportion or alternatively
become resigned to their fate
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8.The Terrorist
• Such customers mount a damaging attack when you least expect it.
• For instance, a customer who declares his dissatisfaction loudly in the middle of a
crowded restaurant, having said earlier how good the food was
9.The Incompetent
• Front-line staff should pay particular attention to these customers
• A new customer may be confused about the organization’s procedures
• If front-office staff do not educate such customers, they may find the experience
threatening and as a result do not return
10. The Champion
• Most valued customers who are supportive of the organization’s staff and its service
• Helpfully participate in the process
• Provide positive word-of-mouth about the organization, its services and staff

56
 Tolerant Champion
Positive
Ally
Patient
ATTITUDE
Incompetent Hostage
Intolerant
Negative Victim Anarchist
Terrorist

Passive Active
ACTIVITY

57
 Creating Allies
Converting customers from the top left quadrant of the figure into Allies
is the easiest task.
• Allies are already positively disposed to the organization but require
engaging in the service process
• Providing information, good communication and explanations and
involving them in process development through soliciting feedback may
easily convert these customers
The negatively disposed victims in the bottom left quadrant may require
counselling and support to turn them into Allies.
• The risk is that even after considerable effort Victims can easily turn into
Hostages or Anarchists

58
Anarchists and terrorists are the most difficult, yet most important froup of
customers
• Removal of such customers from the service organization may be the best
way
• However, if they can be engaged by harnessing their negative through
personal involvement in the organization and its processes, they can be
powerful Allies, or even Champions for the organization and its causey

59
 Three Types of Customer Relationships
Three main types of customer relationships are:

(a) Firstly, relationship is based on a portfolio of services or products

frequently found in higher –volume operations
(b) There is a personal relationship created between an individual customer
and an employee
(i) Particularly prevalent in low-volume professional organizations
(c) Thirdly, there are temporary customer relationships, mainly
transactional, one-off nature

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 Portfolio Relationships
• Portfolio relationships involve the creating relationship with the customer
using a variety of products or services
• For instance, banks create relationship with their customers by selling
multiple ‘products’ such as current accounts, loans, house loans, insurance
etc
• This provides the customer with benefits such as :
(a) Single-point contact for their product/service portfolio
(b) Discounts for new services/products bought
(c) Loyalty bonuses
• The disadvantage is:
(a) When a customer wishes to switch over, he often finds it difficult
untying himself from the set of services/products
• The benefit for the organizations are that portfolio relationships provide
higher-value customers :
(a) Longer term revenue stream
(b) Opportunities to cross sell other services or products to customers who
are already engaged with the organization
(c) Create a data base by obtaining valuable information from and about
the customer
• Many service providers, such as retailers, airlines and restaurant chains
actively promote portfolio relationships and loyalty on existing services
and products through loyalty schemes such as:
(a) Frequent flyer programmes
(b) ‘Club’ cards for supermarkets

62
• Most of these are actually discount schemes encouraging the customer to
earn points by spending more money with a particular service organization
rather than competition
• Such service providers are essentially creating loyalty rather than building
relationships
• Relationships can be developed by holding information about a customer’s
needs
For instance, some hotels store information about their card-holding
customers so that these customers are provided with a room that meets their
requirements
Customers may also gain certain privileges, for instance, airlines loyalty
customers may be provided with access to executive lounges, free seat
reservations, company newsletter , opportunities to participate in special
events and opportunities to provide information to the organization.
63
 Personal Relationships
• Personal relationships exist in many professional and low-volume, high
margin services
• Often use key account managers to create deep personal relationships with
customers
• The objective of the service provider is to create a situation where customer
thinks of them whenever the customer needs the service or when planning to
place more orders
• In B2B organizations, establishing personal relationships are advantageous on
both sides
• Service providers get to know the customer’s business well and:
(a) Leads to more effective service with a faster response
(b) Service providers do not have to go though another development phase
64
• Many B2B services take place over weeks, months and in some cases years
• For instance, Management consultants may work alongside the client’s
employees and it becomes critical that effective relationships are built in
order to carry out the assignment
(a) Technical expertise becomes only a part of the requirement for an
effective consultant
(b) Ability to build personal relationships with the client and client’s
employees becomes more critical
Four key elements to a personal relationship between service provider and
customer are:
(a) Communication: extent to which there is a two way communication; the
ability to deliver, clear message, and ability to listen carefully
(b) Trust: the degree to which one partner depends on the work or
recommendation of the other
65
(c) Intimacy: the extent to which each partner shares their plans, strategies, profits
etc.
(d) Rules: A mutual acceptance of how this particular relationship operates, what is
acceptable and desirable, and what is not.
• Developing personal relationships often have significant operational implications
• There can be considerable resource implications in adopting an approach based on
establishing relationship between the customer and the service provider.
(a) Processes and activities become less defined and harder to predict
(b) Capacity management is less precise and efficiency goals become harder to
achieve
(c)Processes must be more flexible in order to meet requirements that are very
clearly defined at the start of relationship

(d) Staff will require a different set of competencies

66
 Temporary Customer Relationship
• High-volume consumer services require the formation of temporary
relationships
• Customer connections are made quickly
• When the customer is buying something that cannot be readily assessed , part
of the purchasing process may include a conscious or unconscious
assessment of the competency and honesty of the organisation’s
representative
• A combination of perceived risk and lack of knowledge on the customer’s
part will mean increased possibility of relationship as the customer would
need reassurance
• Examples may include: purchasing a used car, insurance policy , mutual fund
etc where the customer is often incapable of making a totally informed
decision 67
 Customer Relationship Management (CRM)
• CRM is a term given to the management of customer relationships in high
volume consumer services
• The objectives are:
(a) To have more profitable business
(b) To form closer understanding of the needs of individual customers
• Identification and enhancement of customer relationships is facilitated by
technology
• CRM attempts to record information about customer preferences
• Uses the information to develop and strengthen the relationship and
profitability of the customer

68
• CRM collects data from all parts of the organisation to track and analyse
single customer relationship
• CRM identifies the general trends as well
• To facilitate CRM, the companies turn to Data warehousing.
• A data warehouse is an integrated source of data that collects, cleans and
stores information about customers.
• This is called ‘information-based continuous relationship marketing’.
• Data warehousing allows the organization to view relationships and
profitability across the organization
• Internet –enabled activity allows companies to give information to their
customers and collect data from them in a much more structured manner
• A smaller version of of the data warehouse is called data mart and serves a
particular department/division of the organization
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• Data mart should ideally be integrated with the enterprise’s data
warehouse
• CRM is aimed at both customer retention and enhancing relationship
• CRM is defined as the ‘management process that uses individual customer
data to enable customized and valuable propositions
• CRM is characterized by the IT enabled integration of customer data from
multiple sources
• CRM demands significant changes in the way company operates
• CRM requires the commitment of customer-facing staff to think about
application of IT to get customer insights for each transaction

70
 How can Managers Develop Business
Relationships ?
• Building business relationships is different from building ‘customer’
relationships
• Business markets are often made up of a small number of powerful
customers who are seeking solutions to problems
• The drivers for improving B2B relationships include:
• Gain in market share
• Acquisition of intellectual property rights (IPR) or technology
• Improved productivity
• Growth
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Benefits arising from improved business relationships are:
• Improved profitability
• Long-term differentiation
• Growth
• Shifts in behaviour
• Increased trust
• Fruitful co-operation
• Improved working patterns
• Enhanced capacity for problem solving

72
 Forms of Business Relationships
• Some of the most frequently encountered business relationships include the
following:
(a) Contracts
• Non-equity agreements specifying the cooperative contributions and powers
of each partner, where greater power lies with the purchasing partner
(b) Partnerships
• Sometimes referred to as alliances
• Can be contractual or informal
• Can be parity type relationships built on equal input of both partners with
shared goals and for mutual benefit
• Some partnerships are short term while others might be a prelude to full
merger of two or more companies 73
(c) Strategic Alliances
• Also referred to global alliances
• Are voluntary arrangements between firms involving exchange, sharing or co
development of products, technology or services
• May also involve one party acquiring a partial stake in the other
(d) Partnering
• Concerned with developing closer relationships between the partners in an
environment of openness and trust
(e) Joint Ventures
• JVs are one form of alliances and involve the partners creating a new, separate
body or subsidiary , jointly owned, to exploit a particular opportunity
(f) Networks
• Interconnecting partnerships, alliances, or JVs which may take different forms

74
 Transactional Versus Strategic Relationships
Though inter-organisational relationships exist in many forms; broadly
there are only two types of relationships
(1) Transactional, and
(2) Strategic
Transactional type Strategic type

• Arm’s length • Arms linked

• Value specified • Value created
• Contract led • Spirit driven
• One of many • Selective
• Asymmetric • Parity
• Shorter term • Longer term
• Tightly defined • Continually developing

75
 Assessing Transactional Relationships
• Measurement of transactional relationships is concerned entirely financial and
operational performance
• For instance, price and on-time completion or delivery quality
• Such measurements are frequently defined by service level agreements (SLAs)
which are often imposed on the supplier by the purchaser
Advantage of SLAs
• Provides a basis for review of how well the contract is working
Disadvantage of SLAs
• It is impossible to describe all facets of service provisions through SLAs
• Also SLAs are sometimes used to exert undue pressure on suppliers
• For instance, if supplier has performed very well against the agreed measures,
the purchaser may ask the supplier to reduce the price on assumption that the
supplier has more resources than necessary to meet the performance targets
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 Service Level Agreement Measures- Help Desk support

Telephone response 95% within 3 rings

Problem resolution 65% through first-line support within 8 hours and 35% through second-line
support within 24 hours
Complaint escalation To first-line manager after 8 working hours, To senior managers after 16
working hours
Request for software fix Initial response within 5 working days and outline proposal within 15
working days
Service Level Agreement Measures- Equipment Maintenance

Response to non-critical fault 2 working days

Response to critical fault 2 hours

First-time fix rate 95%

Schedule adherence 95% within 2 working days

Spares availability 95% within 48 hours, 100% within 5 working days

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 Assessing Strategic Relationships
• Partner organizations work closely together and are in a long-term
relationship with mutual benefits in mind
• Based on the joint development of process and monitoring an agreed set of
hard and soft metrics
Seven dimensions of a business relationship are:
Dimensions Definition
Partner selection Who you chose to work with
Nature of contract Impact of the contract on relationship and vice versa
Understanding each other Understanding each other’s expectations and perceptions
Interpersonal relationship One-on-one relationships at work and socially
Way of working Relationships at organizational level
Dealing with the problems Dealing with and learning from the problems
Performance management Using measures to drive action and improvement
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 Key Account Management (KAM)
• An approach suitable where organizations have a relatively small number of
strategic customers
• These relationships are complex, with more, with more than one channel of
contact between the service provider and the customer
• In traditional approach, transactions flow through one point of contact- sales
or contract manager.
(a) The relationship is as strong as the link between a single buyer and the sales
or contract manager
(b) The relationship is vulnerable to changes in personnel
(c) Some organizations regularly change their buyers in order to maintain
‘arm’s length’ conditions with their suppliers/service providers
(d) Change in buyer might lead to less favourable enviroment
79
• The aim of KAM is to turn the traditional relationship into much stronger
relationship
Traditional contact Contact at all levels
with the buyers and functions of both
through sales – supplier and
contact can be easily customer-contact
broken cannot be easily
broken

Supplier Customer Supplier Customer

• Particularly useful for a professional service firms that have individuals or

groups that are encouraged to be entrepreneurial in business development

80
The disadvantage :
• Customers are approached by number of people from the same organization
giving an impression to the customers that the firm does not understand its
business well
• For B2B organizations, the customer retention is very vital
• The organization focuses on customer loyalty
• The relationship growth has to be emphasized here
(a) Build more links
(b) Broaden the business connection

81
 Building interpersonal relationships in
business
Interpersonal business relationships can be established and enhanced in four
ways
(1) Going extra mile
• Providing higher than expected levels of service such as providing detailed
documentation, analyses, explanations or even presentation, greater
accessibility to the staff etc
(2) Increasing the amount of client contact
• Making frequent visits or telephone calls
• Creating contacts at different levels in the organization
• Scheduling meetings and feedback/development session
82
(3) Building the business relationship
• Organizing events/seminars for the clients
• Helping them make other contacts
• Assisting with benchmarking
• Sending useful articles/information
• Referring business to other clients
(4) Building a social relationship
• Providing social activities and tickets for events
• Remembering personal anniversaries etc

83
Managing customer expectations and perceptions
• Operations managers need to understand and influence, their customers
expectations to ensure they provide a service that meets or possibly exceeds
those expectations
• It is vital to understand what customers really want on an ongoing basis
• Customer satisfaction can be managed to some extent by influencing
customers’ perceptions and expectations of service delivery
• Companies that have reputation for excellent services spend time and money
listening to customers
• Operations managers need to consider service quality
• Service quality includes the specifications that reflect the customer needs and
expectations
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 What is customer satisfaction?
• Satisfaction is the result of customers’ overall assessment of their perceptions
of the service process, their experiences and outcomes such as the quality of
the ‘products’ , the benefits obtained and perceived value for money,
compared to their prior expectations.
• If P=E, the customers are satisfied
• If P > E; if perception of service exceeds their expectations, they will be more
than satisfied, even delighted
• If P < E; if their perceptions of service do not meet their expectations, they
may be dissatisfied even disgusted
Assessment

Expectations Service Perceptions Satisfaction

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 Perception-expectations gap
Simplified gap model
Mismatch

Expectations Service Perceptions Satisfaction

Gap 1 Gap 2

There can be several reasons why Gap 1 might exist.

• The service may have been inappropriately specified, designed or executed
• There may be insufficient resources to meet the expectations
(a) Inappropriate specifications and design of the services may be due to poor
understanding of customer expectations
86
(b) Insufficient resources may be the result of a poor understanding of market
requirements or demand.
(c) Inappropriate expectations may be result of inappropriate marketing, promises
made by the organization that cannot be delivered, or inappropriate word-of-mouth
referrals or organizational image

Gap 2 may be the result of:

• Either incorrect provision of a service or a customer inappropriately perceiving the

service

• A mismatch as a result of poor service provision can be removed or at least reduced

through service recovery

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 Gap 1 Gap 2

Internal causes Lack of understanding of customer expectations Incorrect or inappropriate service

provision
Inappropriate specification and/or provision

Poor service design

Insufficient resources

External causes Inappropriate expectations of the service experience and/or Inappropriate perceptions of the
outcomes service experience and/or outcomes

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 Disadvantages of the expectation-perception
approach to perceived service quality
• Service could be perceived to be ‘good’ when it is ‘bad’
- If customer expectations are particularly low, poor operational service quality
may be perceived as highly satisfying because expectations have been exceeded
• Service could be perceived to be ‘bad’ when it is ‘good’
- Likewise, it is also possible that if the expectations are high, due to over-
promising, for example, a good operation service may be seen as inadequate.
• Service that was ‘good’ last time may only be ‘OK’ this time
- If a service was perceived to have been ‘good’ then the customer’s expectations
may be raised next time
- Customers may get less satisfied on subsequent occasions, despite the fact the
operational quality of the service has remained unchanged

89
• Satisfied customers may switch
- Even though a particular service may meet customers’ expectations and customers
are satisfied, they may switch suppliers, if there is a choice
- Alternative service providers may offer a superior level of service or additional
service features
- Sometimes, the customers may be naturally disloyal or inquisitive
For instance, Nortel, a telecommunications company surveyed its customers and
discovered that those who scored up to 4 on a scale from 1 to 5 (1= very
dissatisfied, 5 = very satisfied ) were vulnerable to switching. Only those scoring
above 4.5 could be thought of as reasonably loyal.
• There is a close link between the creation of expectations in the minds of
customers and the capabilities of the service process
• Proper communications are needed to set up appropriate design, deliver services to
meet the expectations and manage them during the service process
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 Customer Confidence
• Satisfaction of the customer needs and expectations is assessed through the
service experience
• Customer confidence does not require previous experience or contact with the
organization
Confidence is a significant concept for organizations which have very less or no
contact with the customers such as social services, police, courts, hospitals, legal
services etc
• Confidence is about having belief, trust or faith in an organization, its staff and its
services
• Confidence in an organization such as police not only affects the feeling of well
being and quality of life but also influences the way we interact with that
organization
For instance, if we have confidence in police, we may be more than willing to
provide assistance as a witness to an incident or provide information about
suspicious events, or may cooperate better when caught in minor offence
91
• Confidence pre-service i.e. before we receive any service is influenced
primarily by three things over which organizations may have limited control
or influence:
(a) Personal beliefs (beliefs held by the individual about the organization)
(b) Media (television coverage of the organization)
(c) Word-of-mouth (the communicated experiences of others)
• Three things that organizations have control and influence:
(a) Visibility of the organization, its services and its employees
(b) Familiarity with organization’s employees, services or abilities
(c) Communication about the knowledge of the services and its abilities
By managing above factors, organization can have an important impact on
their potential customers and efficiency and effectiveness of the services
delivered by them 92
 Managing Perceptions and Expectations
• Two key roles of operations managers are:
(a) How to manage and influence customer expectations , and
(b) How to manage customers’ perceptions during the service process
Managing expectations
• Careful attention to the design of the first few steps of service, clues and
messages to set right the expectations
For instance, a customer entering a restaurant sees the way it is set out and
based on this will draw conclusions about the level of service that he/she
can expect
• If table and chairs are functional and there are no tablecloth or decorations,
customers will be prepared to expect simpler service than if they go into a
restaurant with comfortable seats, tablecloths and decorations.
93
Managing Perceptions
• Managing customer perceived quality during the service process is a dynamic
activity
• Level of satisfaction and dissatisfaction during the service process and the
customers’ experience leads to the perception
• Satisfaction is heavily influenced by how the experiences are felt when they
are at peak and how customers felt when the services ended; known as ‘peak-
end’ rule.
• Customers are likely to be heavily influenced by the final stage of their
experience
• By designing a good end to an experience operations manager can create
overall feeling of customers’ satisfaction
• Early stages of the process are also important as they set customers’
expectations and create a good initial impression
94
For instance, arriving at the hotel’s reception where the customer is dealt
with quickly and pleasantly, the check-in forms are pre-filled, only needing
a signature, and a glass of champagne offered can create a perception as
excellent
A patient with an appointment with a doctor for routine medical
examination may have to undergo seven touch points:
(a) Arrival at the clinic
(b) Reception
(c) Waiting for the doctor
(d) Meeting the doctor and explaining the symptoms to the doctor
(e) Examination
(f) Discussion of findings
(g) Departure

95
• Expectations are managed and influenced by the medical practitioner
thorough his/her code of conduct such as:
(a) Patients would wait no longer than 10 minutes to see the doctor
(b) Patients will be treated with care and consideration
(c) All medical facts will be explained to patients in a meaningful way
Methods to capture customer expectation
(a) Questionnaires and surveys
• Written or verbal are good means of soliciting opinions about an
organization’s services
• Helpful to find what customers find important

96
Following are the results of a questionnaire asking customers as well as the
staff of a hotel to rate the importance of various aspects of the service (on
the scale of 0 to 10)
Services Ratings by Ratings by Staff
Guests
Speed of greetings 9.0 8.2

Speed of check in 6.8 10

Personal contact (arrival) 9.2 7.1

Room facilities explained 6.8 3.9

Billing accuracy 10 10

Personal contact (departure) 9.2 6.0

Accompanied to transport 8.0 5.0

97
(b) Focus groups
• Usually comprise of groups of about fifteen customers with a trained
facilitator, brought together to discuss one or a few aspects of a particular
existing or planned service.
(c) Customer advisory panels
• Are similar to focus groups but are likely to meet regularly with a more
structured agenda
(d) New/lost customer surveys
• Are very useful ways of finding out what attracts customers to the
organization and why they left. While many organizations are now
conducting exit interviews, the most successful rely heavily upon the
direct involvement of senior managers to ensure appropriate information
an action
98
(e) Complaint/compliment analysis
• Can be undertaken upon customers’ voluntary contribution
• May turn out more negative than positive
• Provide information about the extremes of delight and dissatisfaction
(f) Critical Incident Technique (CIT)
• Attempts to identify the thigs that delight and dissatisfy customers
• Critical incidents are events that either contribute to or detract from ,
perceived service or product performance in a significant way
(1) Ask customers to think of a time when they felt very pleased and
satisfied with the service/product they received and why they felt happy
(2) Ask customers to think of a time when they were unhappy and
dissatisfied with the service/product they received and why they felt
that way
99
(g) Sequential incident analysis
• It combines CIT, walk-through audits and process mapping
• Customers are ‘walked-through’ a pre-prepared process map of the
service they have recently encountered and asked for their experiences of
each stage or transaction in the process.

100
How can service quality be operationalised ?
 Service Quality factors
• These are the attributes of service about which customers may have
expectations and which need to be delivered at some specified time
 Eighteen service quality factors are:
1. Aesthetics
2. Availability
3. Attentiveness
4. Access
5. Cleanliness
6. Commitment
7. Comfort
101
8. Care
9. Communication
10. Courtesy
11. Competence
12. Flexibility
13. Functionality
14. Friendliness
15. Integrity
16. Reliability
17. Responsiveness
18. Security

102
• These eighteen may be consolidated into broader dimensions
• May not capture every aspect of service quality for every organization
• Act as a starting point to define, deliver and measure service quality
(1) Access: The physical approachability of the service location, including
the ease of finding one’s way around the service process or route
through the process.
(2) Aesthetics: The extent to which the components of service and
experience of the same are agreeable or pleasing to the customer,
including
• Appearance and the ambience of service environment
• Appearance and presentation of service facilities, products and staff

103
(3) Attentiveness/helpfulness: The extent to which the service, particularly
contact staff provide help to the customer or give the impression of being
interested in the customer and show willingness to serve
(4) Availability: The availability of service process, facilities, staff and
‘products’ to the customer.
• Staff/customer ratio and amount of time each staff member has available
to spend with each customer
• Quantity and range of services /products available to the customers
(5) Care: The concern, consideration, sympathy and patience shown to the
customer
• Extent to which the customer is put to ease by the service and made to
feel emotionally ore than physically comfortable

104
(6) Cleanliness/tidiness: The cleanliness, neat and tidy appearance of inputs
to the service process
• Includes service environment, facilities, equipment, the contact staff, and
even the other customers
(7) Comfort: The physical comfort of the service environment and facilities
(8) Commitment: The staff’s apparent commitment to their work
• Pride and satisfaction the staff take in their job, their diligence and
thoroughness
(9) Communication: The ability of staff to communicate with customers in a
way they will understand
• Clarity, completeness and accuracy of both verbal and written information
communicated to the customer
• Ability to listen to and understand the customer 105
(10) Competence: The skill, expertise and professionalism with which the
service is executed
• Carrying out correct procedures, and correct execution of customer
instructions
• The degree of ‘product’ or service knowledge exhibited by contact staff
• The provision of good sound advice and general ability to do a good job
(11) Courtesy: The politeness, respect and propriety shown by the contact staff
in dealing with the customer and his property
• Ability of the staff to be unobtrusive and non-interfering when appropriate
(12) Flexibility: A willingness on the part of service provider to amend or lter
the nature of service to meet the needs of the customer
(13) Friendliness: The warmth and personal apoproacability of the contact
staff including cheerful attitude and the ability to make the customer feel
welcome
106
(14) Functionality: The serviceability and fitness for the purpose of service
(15) Integrity: The honesty, justice, fairness, and trustworthiness with
which the customers are treated by the service organizations
(16) Reliability: The reliability and consistency of performance of the
service and its staff
• Punctual service delivery
• Ability to keep to agreements made with the customer
(17) Responsiveness: The speed and timeliness of service delivery
• Speed of throughput
• Ability of service to respond promptly to customers requests with
minimal waiting and queuing time

107
(18) Security: The personal safety of customers and their possession while
participating in or benefitting from the service process
• Maintenance and confidentiality
The above factors cover many aspects of a service, including:
(a) Inputs: Staff availability, appearance, and competence, aesthetics,
accessibility, and comfort of facilities
(b) The service process: process reliability, staff responsiveness and
communication skills, the functionality and reliability of the
technology
(c) The service experience: Staff friendliness and courtesy, and a feeling of
security
(d) Outcomes: The functionality and reliability of the service received

108