BA 302 - Services

BA 302 - Services

Learning outcomes:

Understand and explain the term postindustrial.

Understand the shift in GDP and workforce contribution of the extraction, goods production (manufacturing, processing & construction) and service sectors over time.

Relate this shift to advances in productivity.

Define and compute productivity and efficiency.

Explain ways in which productivity can be improved.

Explain how information technology can contribute to productivity increases.

Explain why we need books and courses on service process improvement

Explain why the relationship between productivity and information systems is not always obvious.

Explain the difference between goods and services.

Know and explain both the service process matrix and the more traditional process matrix.

Explain the terms job shop, batch, line and continuous. Provide examples of each.

Explain what a model is; explain why the (service) process matrix is a model.

Explain the concept of the service package.

Postindustrial (post 1950) society (Fitzsimmons, Table 1.1):

Problem: What do we mean with the term 'postindustrial?'

1950 - now: from 50% to 80% of workforce in industrial nations in 'services.'

Does not count 'services' rendered internally(!!) by extraction, goods production and construction; e.g.,

Accounting & marketing dept.,

Legal,

Janitorial services (in-house),

Sales,

Etc.

Long term: factory floor production and extraction jobs are a shrinking portion of the work force / GNP.

Problem: What caused this /made this possible?

Clark-Fisher hypothesis (p. 3): productivity increases in one sector of the economy make available resources in others.

Problem: Define productivity:

Notice a few things:

Productivity is expressed as a ratio (a rate).

Be careful of the units of measurement.

Problem: Susan spends 12 hours researching and typing a 24-page report for her accounting class. What is Susan's productivity?

Productivity ≠ Efficiency:

Efficiency is the ratio of measured productivity to an established productivity standard or norm.

Notice how efficiency is a dimensionless measure; it has no units!

Another dimensionless business ratios: Price/Earnings or P/E ratio of a stock.

Problem: If a typical accounting student creates two report pages for every hour of research and typing and Edward takes 9 hours to research and type a 15-page report, what is Edward's efficiency?

Some productivity examples:

≈1800: 80% of US population required to feed 100%; now: 1-2% (and net exporting).

Early 1900s; 3 out of 10 workers in service sector (Fitzsimmons, p. 3; Figure 1.2).

≈1950: 50% of workers in services.

US factory output doubled in last 30 years; manufacturing job force %: 1950≈37.5%; 2004≈15%.

Problem: Why do we generally recognize the post-industrial era to start at around 1950?

How did productivity in extraction and goods production increase so much?

Mechanization & new technologies; e.g., steam engine, electric loom.

Landauer (1995 - The Trouble with Computers): 30,000% increase in cotton production productivity over 60-year period.

Better (smarter) processes:

Division of labor --> specialization, local optimization --> outsourcing.

Business Process Reengineering (BPR):

Doctors no longer making house calls.

Hair dresser/barber & oil change appointments (OilCan Henry's vs. car dealerships).

Unites States Postal Service offer at CES.

BPR enabled by new technologies: e.g.,
- Steam engine vs. electric motor.
- Self check-in for flights.
- Most European grocery stores: self-weigh and price fruit & veg.
- Inventory management & grocery shopping with Radio Frequency IDentification(RFID).
- Dematerialization (Figure 1.6, p. 11): replacement of information-bearing physical goods and services with electronic ones:
- Notice how some of the above technologies allow offloading work (cost) to the customer!

Overall trend: productivity increases through business process reengineering supported by technology innovation and shifting work and cost to others.

Review: productivity increases through mechanization & process changes driven by new technologies and the need to reduce cost. --> trend continues in service sector.

Other factors relevant in the shift to a postindustrial society:

Maslow (p. 6): Hierarchy of needs (food & shelter --> goods --> services).

Engel: (p. 6): "Can only eat so much..."

Bell (p. 6): Economic growth partially drives itself.

Problem: Why a book / course on operations / processes in services?

Services too experience productivity growth through technical innovation; e.g., the Internet.
However, productivity increases in services are MUCH less (recall Landauer's 30,000% electric loom example) than in nonservices:

Solow, R. (1987) "We see the age of computers everywhere but in the productivity statistics."

Internet and maturation of computing technology have done much since, but nevertheless:

Great potential for process / information improvement in services.

Goods vs. services:

Service definitions (Fitzsimmons, p. 1).

Problem: Spend a few minutes studying the definitions of 'services' on page 2. Try evaluating them critically. Which one(s) do you like/not like? What's wrong/good about them?

What makes a good definition?

must represent the theoretical concept under consideration (good 'correspondence').

exhaustive.

exclusive (e.g., cannot be tautological').

logically consistent (noncontradictory).

maximally parsimonious.

	Goods	Services
Product	tangible (material)	intangible (immaterial) (Exceptions?)
Resale	yes	no (Exceptions?)
Transfer of Ownership	yes	no (Service provider does not 'lose' the service capability')
Inventory (simultaneity)	yes	no
Perishability	some	many
Quality	'easy' to define & measure	tricky; often subjective (Exceptions?)
Transportability	yes	no (Exceptions?)
Automation	yes	yes, but harder.

Fig. 2.1 (p. 22): (Service) Process Matrix (variation of the product-process matrix): classification of services along two dimensions !!!that affect the service delivery process!!!:

Degree of interaction & customization (ability of an individual customer to influence the nature of the service).

Degree of labor intensity (labor cost / capital cost).

Customization

Low
High

Labor
Intensity
Low
Service factory:

Airlines.

Trucking.

Hotels.

Etc.

Service Shop:

Hospitals.

Repair services.

Etc.

High
Mass Service:

Wholesale.

Schools.

Retail commercial banking.

Etc.

Professional Service:

Doctors.

Lawyers.

Accountants.

Architects.

Etc.

More traditional OM view: Job shop -- Batch -- Assembly line -- Continuous flow.
- Problem: Where would you place Dell on the Hayes/Wheelwright diagram?
- Notice that although the Hayes/Wheelwright process matrix is discrete (grid), it really represents a continuum.
- Note that these classifications are 'models:' i.e. simplifications of reality which:
Service Package (p. 20-21):
- Explicit (intrinsic) service; e.g. University: education, degree, transcript, student jobs, learning.
- Implicit (extrinsic) service; e.g., University: Alma mater, winning games, ivy league.
- Service information processing:
- Support facilities:
  - Front office (facing the customer).
  - Back office.
- Facilitating goods; e.g., golf clubs, auto parts, restaurant foods, etc.
Each of these have specific operational processes.

Each process requires resources.

Overall, the package adds value to customers --> they will pay you for it.

But only if the offered quality is good.

And if the 'price' is right.

Service delivery as a systematic process (p. 27): see next lecture.

Test questions:

What percentages of GDP and workforce are represented by extraction, goods production and services in modern western economies?

How does this compare to 200 years ago?

What made these large shifts possible?

A gift-wrapping business is staffed by Kaitlyn, Rob, Sam, Susan and Sarah. The production by each of the staff members for an average eight-hour work day is as follows:

Kaitlyn
Rob
Sam
Susan
Sarah

64 packages 55 packages 52 packages 52 packages 48 packages

What is Kaitlyn's productivity?

If expected productivity is to spend 10 minutes per package, what is Kaitlyn's efficiency?

What are some limitations of using efficiency or productivity to evaluate the performance of the staff members of this business?

Provide some examples of how new technology allowed business processes to be reengineered.

Draw and explain the Hayes/Weelwright process matrix.

Draw and explain the Fitzsimmons service process matrix.

If the growth of the service industry was made possible by productivity increases in extraction and goods production what about the prospects of 'information-processing' jobs? e.g., sea & river pilots, clerks, surveyors, teachers, tax accountants, tax advisors, as computers become ever faster and more functional?