A Feature of Service Systems

The inputs to a service productive system are the consumers themselves. The productive process that transforms the inputs into outputs of labour, technology, information and the like.  The output of such a system is the altered state of the consumer, for example, a cured patient a transported traveller,  or an informed client.   The operations manager controls the design and mix of the productive process to meet customer requirements.

The key distinction between service and manufacturing systems is that services are intangible outputs that are consumed in the process of their production. The technology process for supplying the service can differ significantly from one industry in the service sector to another. Further, within the same industry – for example, the restaurant industry – there can be vast differences in both the supply technology and the desired outputs.

Several distinctions between systems that produce products and systems that produce services were noted.

In the production of tangible goods, such as automobiles, soap, or beer customer contact is limited to the retail end, after actual manufacturing has been completed. In the design, planning and control of the associated manufacturing process, the preferences of consumers are important, but the customer’s actual presence is not. This anonymity in the productive process that allows for the attainment of significant manufacturing efficiencies and productivity growth, as has been witnessed in the past 100 years. For example, the number of watches produced per worker has increased a hundred fold since the start-up of the watch industry. This has undoubtedly decreased the cost of watches, making them affordable to anyone with moderate means. In the same time, productivity in education may not have even doubled despite the significant advances in information transmission technology Therefore, without public subsidy advances in information transmission technology. Therefore, without public subsidy, quality education would be affordable only to those with extensive means. They key distinction is not that the watchmaker now works faster than the teacher but rather that the direct customer (pupil) contact required in education limits sustained growth in productivity without compromising  the quality of the service delivered. Gradual   increases in the cost of education are not the result of administrative inefficiencies but the nature of the services provided. An operations manager or policymaker who views progress in terms of cost reduction is likely to be frustrated in the field of education. Instead, the emphasis should be on the quality and accessibility of education and on education’s contribution to productivity growth in other sectors through well-trained engineers, managers, or physicists.

However, not all services require such a high degree of customer contact. At the other extreme is the telephone industry, which requires little direct customer contact except for operator assisted telephone calls and directory assistance. In this industry the cost of the service has steadily decreased while quality improvement has been consistently achieved over time. The productivity growths documented in the telephone industry are large in comparison to those attained by virtually any manufacturing institution. Since considerable insights into the workings of various industries within the service sector of our economy can be provided by using direct customer contact as a variable, we will use it as a primary   feature for classifying service systems.

The service sector does not consist of an identical group of services. The industries within the service sector are too different for a common frame of data analysis. The services can be classified into four categories:

1)   Stagnant personal services

2)   Substitutable  personal services

3)   Progressive services

4)   Explosive services.

These services frequently require direct contact between the customer and the service provider.  Some examples are hair cutting, live artistic performance, psychiatric counselling and teaching. These services offer low innovation potential and are difficult to standardize.

Although productivity gains are minimal in stagnant personal services, the operations manager has several options for strategically  placing the service that are consistent with corporate goals. All haircutting shops, for instance, are not alike. One may emphasize low cost with little customization, whereas another may emphasize customization and charge a higher price. Both firms may be successful if managed well, as they cater to different segments of the market.

Substitutable Personal Services:

These services require direct personal contact, and they have characteristics similar to stagnant personal services. However, it is possible to substitute for these services with technological or other alternatives. An example would be the services of a guard that can be replaced by electronic surveillance systems. In the 20th century we have seen ovens, washers and dryers and other household appliances substituted for personal servants (maids, cooks etc.). Some types of teaching such as real estate licensing course work are now   conducted using cassettes, tapes and videos, and the demand for the live instructors has decreased correspondingly.

A great leap in productivity in substitutable personal services is provided by technological innovation.