Services have been the dominant mode of generating value in our economy for several decades now. And still, services are poorly understood. The bulk of the theory and practice on how to manage operations is still derived from physical production processes. However, unlike physical products, services cannot be buffered or stored, and production and consumption are instantaneous, to mention two differences that have huge impact on how operations are best managed.
Moreover, things are changing. The biggest driver of change is IT. More and more services are becoming IT-enabled, they are digitized . They live in the Internet and are ordered from and/or delivered to mobile devices. This has made another aspect of services much more important: many services are delivered through a sequence of capacitated process steps, through a service supply chain. In such IT-enabled service supply chains, the volatility of demand and supply becomes much, much greater. IT-enabled service steps can easily grow by 100â1000%, but steps with human capacity as a bottleneck obviously cannot. And so, the need to understand how they really work and how to manage them is only becoming greater. We are talking about huge parts of the economy, affecting many millions of consumers: telecom providers, banks, insurance companies, energy utilities , the tax office, and other government institutions.
Unfortunately, at present there is only a limited amount of specialized academic literature available that offers guidance to practicing managers and to students of service operations. The goal of this textbook is to bundle and integrate these separate insights in a consistent and accessible manner for both operations students and operations executives.
1.1 Maintaining a Delicate Balance
This book tries to balance two opposing ideas. This balancing act is repeated a number of times. First, it combines insights from manufacturing operations with the unique nature of services. Our body of knowledge on manufacturing operations is vast and has accumulated over a century. There is much that service operations can learn from it, and this book indicates many links to these insights. On the other hand, services are intrinsically different from manufacturing . A very short summary of these fundamental differences is that service operations are more difficult to manage than manufacturing . This book also highlights these differences repeatedly.
Secondly, it balances theoretical insights with practical common sense. This book has its feet firmly on the ground and its head in the clouds. It has a sound empirical base of over a dozen cases of real-world companies facing problems with the dynamics of their service operations. At the same time, it also employs a wide array of theories and models, unified by a common system dynamics perspective. The theories and models provide the rigor that helps to understand the real world better. The cases assure the relevance of theories for the real world. The author has first-hand knowledge of all the cases in this book. He has worked as a consultant and/or action researcher in every one of them. He was also directly involved in all the formal models of the cases presented in this book. For the wonderful theories that place the case-specific phenomena in a broader perspective, various literatures were consulted. The author himself has contributed to several of these.
Thirdly, a recurrent theme in this book is that of festina lente. Service operations management requires balancing speed with thoughtfulness, two fundamentally opposed ideas it would seem. We will see that the managers in the cases we study most of the time err on the speed side; they try to go too fast. Or perhaps it is better said that they display too little thoughtfulness? This balancing act lies at the core of this book.
1.2 Digitization, Disruption, and Discontent
This book is written because service operations especially are in dire need of better understanding and management. Services are faced with discontented customers, with disruption, and with digitization .
Discontented Customers
Services have had a bad name for at least two decades now: âservices stinkâ (Brady 2000) or âbad service prevailsâ (Gerstner and Libai 2007). This is especially so in the business-to-consumer industries, which often serve hundred thousands to millions of consumers, and especially so in those services that are increasingly digitized , such as telecom , banking , insurance , utilities , and government services such as taxes.
This has been going on for at least two decades. Oliva and Sterman stated in 2001: âErosion of service quality throughout the economy is a frequent concern in the popular press. The American Customer Satisfaction Index for services fell in 2000 to 69.4%, down 5 percentage points from 1994. We hypothesize that the characteristics of servicesâinseparability, intangibility , and labor intensityâinteract with management practices to bias service providers toward reducing the level of service they deliver, often locking entire industries into a vicious cycle of eroding service standards.â
Fifteen years later, the British consumer site thisismoney.âco.âuk writes this about the annual Wooden Spoon Award, a listing of firms that treat their custom...