MANAGING SERVICE OPERATIONS

MDI, Gurgaon
Part Time PGPM
October 2010
 Course Plan

Session 1-2 • Introduction

Session 3-4 • Service Strategy

Session 5-6 • Managing Demand and Supply in Services

Session 7-8 • Service Quality – Part I

Session 9-10 • Service Quality – Part II

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 Course Plan

Session 11-12: • Lean for Services

Session 13-14: • Productivity and Service Improvement

Session 15-16: • Technology in Services

Session 17-18: • New Service Design and Development

Session 19-20: • Project Presentations

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 SESSIONS 1-2

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 Learning Objectives

Describe the central role of services in an economy.

Discuss the evolution of an economy from an agrarian society to
a service society.

Describe and contrast the features of the new experience
economy with that of previous economies.

Describe the features of the new service economy

Discuss the role of service managers with respect to innovation,
social trends, and management challenges.

Discuss various ways in which services can be classified.

Understand cost structures of service industry.

Understand services being labor intensive.

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 OPERATIONS AND
PROCESS THINKING

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 Business Operations = Value Creation

Value Creation through a Transformation Process

Transformation is enabled by the 5 “P”s of Operations
Management

People

Planning
Plants
& Control

Processes Parts

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 Typical Value Delivery Sequence

Provide the
• Strategic marketing Value • Sales force
• “STP”: • Sales promotions
• Tactical Marketing
• Segmentation • Advertising
• Product / Service
• Targeting Development • PR
• Positioning • Pricing • Sponsorships
• Sourcing & Distribution
Choose the Communicate
Value the Value

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 What is a “Process”?

“A process is a systematic series of actions directed towards the
achievement of a goal” – Juran

“A Process is a series of definable, repeatable, and measurable
tasks leading to a useful result”

Input Process Output

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 Typical Process Components

SUPPLIER Input Process Output CUSTOMER

• Where • Input • Set of • Output • Where

does Criteria Activities Criteria does
input • What • Standard • What output go
come comes in? Operating goes out? to?
from? • What Procedur • What • What are
• What are should es should go the inter-
the inter- come in? • Metrics & out? linkages?
linkages? Measures

Feedback

• Is the
input
useful?
• How is
the
output?
• What are
the
learning?

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 Class Exercise: Writing Process Definition

You are MIS Sparta. You conduct Leadership and Behavioral
Trainings in New Delhi for large corporate organizations.

You publish training calendars for public workshops every
quarter.

Create the following Process Definitions:

1. Training Sales Process
2. Training Sales Intensification Process
3. Training Course Cancellation Process

What other processes are required before and/or after these?

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 Common Process Definition Models

ETVX Model – by IBM

Entry, Tasks, Verification,
Exit Criteria

These are four places
where service quality can
be specified and checked.

ETVX MIOR

ETVX +

Metrics, I/P, O/P, Relations

Process Workbench – by
Deming

SIPOC – or COPIS – or
POCIS

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 The Deming Process Workbench

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 High Level Process Definition using SIPOC

Suppliers Inputs Process Outputs Customers

(Providers of the (Resources required ( Top level description of activity) (Deliverables from the (Anyone who receives a deliverable from the
required resources) by the process) process) process)

Requirements Requirements
8
What does the 5
7 What does the
process expect
process expect What does
Who is the from each What does
Who is the from each 2 each customer
supplier of input? each customer
supplier of input? 3 expect from
each input? When does the expect from
each input? What are the each output?
process start? What are the each output?
6 outputs from
outputs from
the process?
What Inputs the process?
What Inputs 1
are required to
are required to 4
enable this What is the
enable this What is the
process to process?
process to Who is the
occur? process? Who is the
occur? customer of
customer of
each output?
each output?
2
When does the
process end?

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 When People have a Process view

People understand the problem and their role in its solution

It is easier to define the scope of the problem.

It is easier to get to root causes.

Opportunities for improvement are seldom missed.

The process, not the people get blamed for the problem (the
80/20 Rule).

Process management is effective.

Improvement is accelerated.

“You can’t improve a process that you don’t understand”

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 Three “P”s of Business

People

Process

Product

What happens when there is no product?

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 SERVICE INDUSTRY DYNAMICS

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 What is a “Service”?

Service:

A service is the non-material equivalent of a good.

A process that creates benefits by facilitating either a change
in customers, a change in their physical possessions, or a
change in their intangible assets.

Service Provisioning:

An economic activity that does not result in ownership, and
this is what differentiates it from providing physical goods.

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 Types of Service Processes

Change In: Tangible Intangible

Customer People Processing Mental Stimulus Processing

Transportation Television
Surgery Entertainment
Physical Therapy Education
Criminal Justice System
Hair-styling

Customer’s Possession Processing Information Processing

Assets
Dry cleaning Banking & financial services
Landscaping Insurance
Interior designing Software development
Package delivery ITES-BPOs

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 Economic Maturity and Clark-Fisher Hypothesis
“Soft sector”

Primary Secondary Tertiary

• Pre-Industrial • Industrial • Intangible

(Extraction) (Manufacturing) • Provision of
• Examples: • Examples: services to
• Agriculture • Automobiles businesses as
• Fishing • Textile well as the
individuals
• Mining • Shipbuilding
• Steel

Typical inclusions in Tertiary Economy:

Insurance, Banking, Government, Tourism, Retail and Education

Franchising, Hospitality, Entertainment, Media, Leisure, Consulting, Transport,

Healthcare, Public Utilities

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 Economic Progression

Economic Primary Secondary Tertiary Quaternary

Offering (Commodities) (Goods) (Services) (Experiences)
Economy Agrarian Industrial Service Experience
Economic Extract Make Deliver Stage
Function
Nature of Fungible Tangible Intangible Memorable
offering
Key Attribute Natural Standardized Customized Personal
Method of Stored in bulk Inventoried Delivered on Revealed over
Supply after production demand time
Seller Trader User Client Guest
Factors of Characteristics Features Benefits Sensations
Demand

Ref: Pine & Gilmore, 1998

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 GDP Composition of the World …

GDP Composition by Sector, produced using data from the CIA World Fact-book 2007. The green, red, and blue
components of the colors of the countries represent the percentages for the agriculture, industry, and services
sectors respectively, as summarized on the color key
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 … As Against Labor Force of the World

Labor Force by Occupation, produced using data from the CIA World Fact-book 2007. The green, red, and blue
components of the colors of the countries represent the percentages for the agriculture, industry, and services
sectors respectively, as summarized on the color key
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 Service-Goods Continuum

Implications to
managers:

Working in Blended
environment

Move from products to
services to “solutions”

Be able to manage not
just one, but multiple
customer touch points

Manage overall
customer lifecycle

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 Product, or Service, or Experience?

Credit Card: ICICI, HSBC

Digital Television: DishTV, Tata Sky

Coffee Shop: CCD, Barista, Costa Coffee, Mocha

Motorbike: Bajaj Pulsar, Royal Enfield Bullet

Mobile Phone: Samsung, iPhone, Blackberry

Watches: Titan Orion, Hugo Boss

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 A Typical Service Product Bundle

Core
(Product or
Service)

Variant

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 Example: DishTV

DTH Digital Television

Service
- Antenna Dish
Industry Differentiator: - Set Top Box
• Clarity of signal - Smart Card
• No dependence on
local cable guy
• Continuous service Core
(Product or
Service)

- After-sales services
- Installation services
• Special channels: Zoom
- Technical Support
• Regional channels: South
- Toll-Free CS Number
• Channels in English: CN,
- Online Payment Options
Variant Discovery
- Warranty for hardware
• Zee channels even in bad
weather

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 Characteristics of Services

Customer
Intangibility Perishability Heterogeneity Simultaneity
Participation
• Need to do • Cannot • Customer • Opportunities • Need to pay
Creative inventory. participation for personal attention to
advertising. • Opportunity in delivery selling. facility
• There is no loss of idle process. • Interaction design.
protection to capacity. • Results in creates • There are
IP. • Need to variability. customer opportunities
• Hence high match supply • Average perception of for co-
importance with demand Handle times “Quality” production
of reputation

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 SERVICE CLASSIFICATION

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 Many Types of Services – How to Classify?

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 The Service Process Matrix
Degree of Interaction / Customization

Low High
Low Service Factory Service Shop
McDonald Hospitals
Airlines Auto Repair
Trucking
Hotels
Resorts
High Mass Service Professional Service
Education Lawyers
Retail Physicians
Banking Accountants
IT Architects
ITES-BPO Consultants

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 Defining Labor Intensity

Cost Structure of a Service Center

• Direct Labor Costs

Labor Costs • Indirect Labor Costs
• Hiring & Training Costs

• Hardware costs
Equipment • Software costs
• Connectivity costs
Costs • Equipment maintenance costs

• Rent
• Office Maintenance
Other Costs • Depreciation
• Interest on Capital Expenditure and other Financial Costs

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 Calculating Costs

Case: You are heading operations for the Customer Service
Center of ABC Telecom in Pune.

Find out what % of your total monthly costs are constituted by
the Labor Costs.

The number of seats in your center = 450

Workforce – i.e. Full Time Equivalent (FTE) = 540

What other data do you need?

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 Data for the case

Cost data: Labor Requirement Numbers Salaries /

Bandwidth cost = 1,900 per CTC p.m.
seat per month FTE (Full time agents) 540 12,000

Rent = 7,600 per seat per Team Leads 36 20,000
month Managers 7 40,000

Office maintenance cost = Senior Managers 2 60,000
4,900 per seat per month Manpower Overheads

Equipment maintenance = QA professionals 18 15,000
3,500 per seat per month QA Managers 1 35,000
Workforce Executives 11 15,000

Depreciation of Capex =
Workforce Manager 1 25,000
13,000 per seat per month
Trainers 18 18,000

Hiring & Training Cost = 25,000 Training Manager 1 25,000
per person (any)
HR Executive 7 15,000
HR Manager 1 35,000

Assumptions: IT Executives 3 15,000

Attrition = 36% per year IT Manager 1 35,000

FTE count is taken after Admin Manager 1 35,000
assuming 20% shrinkage. Finance Executives 2 15,000
Finance Manager 1 35,000

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 Unit Summary

What is a Process?

What is Process thinking?

What is a “Service”? How is it different from a “Product”?

What is the nature of the Service industry?

What is the role of Services in an economy?

How does one classify various Services?

What does labor-intensive Services mean?

How does one calculate the costs of providing a Service?

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