JOURNALOF

OPERATIONS
MANAGEMENT
ELSEVIER Journal of Operations Management 13 (1995) 323-337

A framework for strategic service management

Deborah L. Kellogg a,*, Winter Nie b
a College of Business and Administration, Campus Box 165, PO Box 173364, University of Colorado at Denver, Denver, CO 80217-3364,
USA
b School of Business, Colorado State University, Fort Collins, CO 80523, USA

Received 4 October 1994; accepted 20 August 1995

Abstract

A service framework is needed to foster strategic thinking in services. This paper introduces the service process/service
package matrix to meet that need. The important feature of the service process is the degree of customer influence on the
service process. The unique characteristic of the service package is that it consists of both tangible and intangible aspects.
The service package is described by the degree of customization found in those tangible and intangible elements. Strategic
competencies are identified and discussed along the service process dimension, the service package dimension, and the main
diagonal of the matrix. Some existing strategic frameworks are embedded and incorporated in the matrix. Additionally, we
formulate research propositions based on the matrix. Service firms can use this matrix to gain strategic insights by aligning
the type of service package offered with the type of process used to create the service and to have a better understanding of
their service operations strategy.

Keywords: Service operations; Strategy; Service process; Service package

1. Introduction cess matrix (Schmenner, 1986). Each of these mod-

els, rich and insightful in some aspects, falls short in
Service industries play an increasingly important
illuminating the complex strategic issues in service
role in our overall economy. For years there has been
settings. This paper introduces a new conceptual
a call to enhance strategic thinking in services
framework, the service process/service package
(Thomas, 1978; Lovelock, 1983; Quinn and Gagnon,
( S P / S P ) matrix, designed specifically to address
1986; Schmenner, 1986; Davidow and Uttal, 1989).
unique strategic issues found in service businesses.
A number of frameworks exist in the area of opera-
The S P / S P matrix links the service process struc-
tions management dealing with the product/process
ture with the service package structure, a feature that
link and service operations, most notably the Hayes
is missing in existing models. The service process
and Wheelwright product/process matrix (Hayes and
structure features the customer influence on the ser-
Wheelwright, 1979a), Chase's customer contact
vice production and delivery process. The service
model (Chase, 1981), and Schmenner's service pro-
package structure is described by the degree of cus-
tomization of the service package. The use of the
* Corresponding author. Tel.: (303) 556-5831; fax: (303) 556- matrix allows service firms to gain strategic insights
5899. based on their position in the matrix.

0272-6963/95/$09.50 © 1995 Elsevier Science B.V. All rights reserved

SSDI 0272-6963(95)00036-4
324 D.L. Kellogg, W. Nie /Journal of Operations Management 13 (1995) 323-337

This paper contributes to the existing body of
literature and differentiates itself from other research
in the following ways. First, a new conceptual
framework linking the service process structure with
service product structure is developed specifically
for strategic service management. Given the need for
more theory building research in operations manage-
ment (Swamidass, 1991; Meredith, 1993), the con-
ceptual framework or typology approach used in this
paper represents a useful first step towards theory
building for service operations. Second, synthesizing
the service operations literature, we have identified
and formulated a new service process dimension -
customer influence on the service process. Third, we
use the service package dimension to imply both
tangible and intangible elements of service output.
Fourth, strategic competencies and operational char-
acteristics associated with these two dimensions are
identified and discussed. Fifth, strategic implications
of this framework are examined. Sixth, research
propositions are constructed based on this frame-
work, paving a way for future research to test this
conceptual framework.
This paper is organized as follows. The service
process/service package (SP/SP) is first described.
The operational characteristics and strategic insights
derived from the matrix are presented in Section 3.
In Section 4, we highlight strategic competencies
required for various positions in the matrix. We then
compare and contrast our matrix with the Hayes and
Wheelwright product and process matrix, Chase's
customer contact model and Schmenner's service
process matrix. The next section accentuates the
strategic implications of the matrix on service opera-
tions management. The paper ends with a conclu-
sion.
2. The service package/service process matrix
The development of frameworks and typologies
facilitates the understanding of service operations
management issues (Haywood-Farmer and Nollet,
1991). The service process/service package (SP/SP)
matrix presented in this paper follows a configura-
tion approach (Meyer et al., 1993) that focuses on
the interaction and integration of the service process,
or 'how' we create services, and service package, or
'what' we create, and their impact on service firms'
strategic competencies.
Typologies play an important role in theory devel-
opment and can be considered a unique form of

Service Package Structure

Service Process Structure

Unique / Selective [ Restricted Generic
Service Package1Service Packagel Service Package Serv ce Package
I

Expert
SenA,"e Consulting

Sendce HigherEducation
Shop

Se~ce
Factor/ Package Delivery

Fig. 1. The serviceprocess/servicepackagematrix.

 D.L. Kellogg, W. Nie /Journal of Operations Management 13 (1995) 323-337
theory building (Doty and Glick, 1994). While a
'grand' approach attempts to formulate a typology
capable of embracing all organizations (Mills and
Margulies, 1980; Doty and Glick, 1994), the S P / S P
matrix follows a 'midrange' approach. This restricts
the scope to a more manageable segment. We do not
claim that all service organizations can be located
within this framework. There will be some excep-
tions. However, most service firms will fit in the
matrix or find useful insights using the matrix.
The S P / S P matrix uses customer influence to
define the service process dimension and customiza-
tion to define the service package dimension. It is
possible to add more dimensions to make the matrix
more precise or specific; the tradeoff is that configu-
rations necessarily grow more complex and unwieldy
(Meyer et al., 1993). The S P / S P matrix is presented
in Fig. 1.
One consideration in classifying service firms ac-
cording to this matrix is the level at which classifica-
tion should be done. Service firms vary from small
' m o m and pop' organizations to large billion dollar
conglomerates. It is relatively easy for a small ser-
vice firm (1) to define the major service package
offered and determine the level of customization
afforded and (2) to isolate the major means by which
services are created and determine the level of cus-
tomer influence. This, however, can be a daunting
task for even a mid-sized service firm. The level at
which a firm is classified should be at its 'core'
service offering. We suggest that one first identify
the major service offerings and carefully define the
service package elements associated with each. Then
the service process used to create each of those core
service offerings can be examined for the level of
customer influence involved. It is possible for a large
service firm to occupy several positions within the
matrix. For example, a city fire department might
offer basic fire fighting services as well as inspec-
tion, education and emergency medical treatment.
Each of these offerings could have its own level of
customization and its own service process.
2.1. The service process dimension
The vertical axis of the S P / S P matrix is the
service process dimension. Generally, processes deal
with such operational issues as facility layout, loca-
325
tion, technological choices and capacity. In the ser-
vice operations literature the degree to which the
customer is part of the service process is postulated
to have the most profound impact on service opera-
tions issues (Chase, 1978; Mills and Margulies, 1980;
Chase, 1981; Chase and Tansik, 1983; Lovelock,
1983; Chase and Bowen, 1989; WemmerlSv, 1990;
Kellogg and Chase, Forthcoming). It is the notion of
the customer being part of the service process that
defines the service process dimension.
The customer being part of the service process
has been called customer contact, customer interac-
tion and customer participation. Each of these terms
embodies a somewhat different connotation. What
underlies the notion of customer contact, customer
interaction and customer participation, despite the
unique nuances of each phrase, is that the customer,
by his/her presence, interaction a n d / o r participa-
tion, in some way influences the service process. In
this paper, we use the term 'customer influence' to
encompass each of these concepts, as well as the
notion that the customer has an impact on the service
process. Customers can influence the service process
in the following ways. The customer can influence
the design of the service. The customer can also
influence the delivery. Finally, the customer can
influence both service content and delivery (Fitzsim-
mons and Sullivan, 1982; Schmenner, 1986; Mur-
dick et al., 1990).
The service process has been discretized into
three categories of customer influence to aid in
classification: the expert service, the service shop
and the service factory. The terms evoke clear im-
agery from common language, manufacturing set-
tings and service literature. The categorization of
service processes used in the proposed S P / S P ma-
trix is summarized in Table 1.
Table 1
The service process structure
Process name Degree of customer Examples
influence
Expert service High Accounting
Consulting
Service shop Medium Education
Healthcareclinics
Service factory Low Fast food restaurants
326 D.L. Kellogg, W. Nie / Journal of Operations Management 13 (1995) 323-337

The expert service involves a high degree of
customer influence. An expert, working in conjunc-
tion with the customer, defines and creates the ser-
vice. While commonly this expert is thought of as
being a 'professional', this is not always true. On the
other hand, not all services rendered by 'profes-
sionals' necessarily involve a high degree of cus-
tomer influence. It is not the status of the service
provider that determines this category but the fact
that the service provider and customer work together
to define, produce and deliver the service package.
The service shop involves a medium level of
customer influence. The imagery implied by the
manufacturing job shop is partly shared by the ser-
vice shop. This type of service process is similar to
the manufacturing job shop in the sense that the
service process is usually grouped according to func-
tion. The service shop process involves routing cus-
tomers to the proper service operations in a sequence
that provides both customer satisfaction and opera-
tional efficiency. The customer must help define
service requirements, participate in and interact with
the service process. However, the level of customer
influence is not without a limit due to a certain level
of standardization.
The third category in the service process structure
is the service factory. It is characterized by a low
level of customer influence. In this service process,
not only are individual service operations standard-
ized but also the sequence or ordering is fairly well
defined. Often the customer does nothing more than
to signal the need to begin the service. From that
point on, a rigid process takes over. While the
customer might still be present, (s)he has only indi-
rect or limited influence over the system. This is not
to say that the customer never participates in this
type of service. In fact, the customer is often relied
upon to provide some of the service. However, the
customer influence on the system is very minimal.
This process type has often been called the produc-
tion approach to service.
2.2. The service package dimension
The horizontal axis of the S P / S P matrix is the
service package. The service package is more com-
plex than a typical manufacturing product in the
sense that it contains both tangible and intangible
features. Fitzsimmons and Fitzsimmons (1994) offer
a definition of the service package that consists of
four features: supporting facility, facilitating goods,
explicit services and implicit services. Supporting
facility consists of the physical resources that must
be in place before a service can be offered. Facilitat-
ing goods are the goods used or consumed by the
customer. Explicit services are the benefits that are
readily sensed by the customer and are the essential
feature of the service. Implicit services are benefits
that are sensed by the customer vaguely and are
extrinsic features ancillary to the service.
The service package dimension in the S P / S P
matrix is defined by the degree of customization.
When one considers the service package offered by a
service firm and to what degree that service is
customized, it is actually some combination of the
whole package that must be considered. It is particu-
larly important to clearly define the service package
in order to see the full range of strategic options
available.
The customization construct is discretized into
four categories to facilitate discussion. The first cate-
gory of the service package structure is called unique.

Table 2
The service package structure
Package name Customization Definition
Unique Full Most of the service package is customized. The customer has considerable
discretion in def'ming the hows, whats and wheres of the service.
Selective Considerable While some parts of the service package are standardized, the customer has
considerable discretion in selecting from a wide menu of options.
Restricted Limited Most of the service package is standardized. The customer can select from a
limited number of choices.
Generic Little or none Most of the service package is standardized. The customer has little discretion in
defining the hows, whats or wberes of the service.
 D.L. Kellogg, W. Nie /Journal of Operations Management 13 (1995) 323-337
It offers full customization and is usually a one-of-
a-kind service. The second category is named selec-
tive. While some parts of the service package are
standardized, the customer still has considerable dis-
cretion in selecting from a wide range of options.
The third category is labeled restricted. Most of the
service package is standardized and the customer
selection is limited. The fourth category is termed
generic. There is little or no customization. The
customer has virtually no discretion. The service
package categorization is summarized in Table 2.
2.3. The SP / SP matrix
With the two dimensions defined, the complete
matrix of Fig. 1 is now considered. Along the main
diagonal, the upper left hand corner of the matrix is
occupied by firms offering highly customized, one-
of-a-kind service packages which are created with a
great deal of input from the customer. Many consult-
ing businesses are typical of companies positioning
themselves in the upper left comer. The consultant
acts as the 'expert' and seldom are two consulting
clients identical.
Moving further down the diagonal, the service
package is somewhat less customized. There con-
tinue to be multiple options but not unlimited choices.
The service process still allows for and may require
some customer influence. Higher education, colleges
and universities typically reside in this position. Each
customer/student faces a set of options which may
include: full-time or part-time status, choice of ma-
jors, day or evening programs, and choice of individ-
ual classes. However, once these selections are made,
customer/student influence decreases. The cus-
tomer/student must attend classes at the set time at
the set place, complete a course of study in the
agreed-upon time and sequence, and comply with a
host of rules and regulations. While some individual
courses may allow considerable discretion and stu-
dents are encouraged to participate in class discus-
sions, generally customer/student influence over
classroom activities (how the instructor should con-
duct the class, what materials should be covered, and
when assignments are due) is often limited.
Moving still further down the diagonal, the ser-
vice package becomes standardized and very limited
in options. Customer influence over the service pro-
327
cess is low. An example of a service firm occupying
this position could be a package delivery finn. There
would only be a few options for customers in terms
of delivery schedules and size and weight of pack-
ages. In this type of service the customer influence is
rather minimal. Often there is little actual contact
with the service provider and the interaction could
even be handled by phone. The customer merely
agrees to the already existing rates and schedules.
3. Strategic insights and operational character-
istics of the matrix
The quintessential insight derived from the matrix
is to integrate both operations and marketing con-
cepts to look at strategic positioning of a service
firm. This is critical since most services are produced
and consumed simultaneously (Lovelock, 1983; Hes-
kett, 1986).
For instance, when the service package specifies a
high level of customization, customer interaction and
participation are usually necessary to create this one-
of-a-kind service. Without the inputs and feedback
from the customers, it is hard to achieve this high
level of customization. On the other hand, when the
level of customization is low, service firms whose
service processes are less influenced by customers
could probably compete more effectively and effi-
ciently than those whose processes are highly influ-
enced by customers.
Service firms in the same industry can also posi-
tion themselves differently in the matrix based on
their service package offerings and the level of cus-
tomer influence on the service process. The Mayo
Clinic operates in the upper left corner. It customizes
treatment on a one-of-a-kind basis. The customer/
patient has considerable influence over this system,
both directly and actively as (s)he sets appointments,
agrees to various treatment plans and provides diag-
nostic information, and indirectly and inactively as
(s)he shows physical symptoms and responds to
various treatment plans based on laboratory and other
test results. The National Jewish Center for Im-
munology and Respiratory Medicine, a nationally
known center for the treatment of asthma and other
respiratory illnesses, occupies a position in the mid-
dle of the matrix. This hospital is able to treat only
328 D.L. Kellogg, W. Nie / Journal of Operations Management 13 (1995) 323-337
immunological and respiratory diseases. Within that
set it offers an exhaustive range of services, how-
ever, it is not designed to respond to medical needs
outside that set. Shouldice hospital, the hernia hospi-
tal made famous both for its excellent hernia repairs
and the Harvard Business School case, operates in
the lower right of the matrix. The care it provides is
quite standardized to the point of having 'cohorts' of
customer/patients who all go through the procedure
together.
A service firm's positioning in the matrix is not
static. For example, a package delivery service may
perceive a market opportunity to offer customized
services, including a full variety of shipping sched-
ules, handling all types of shipments and providing
the customer a great deal of latitude in defining the
service. This will result in a different position on the
S P / S P matrix compared to the standard package
delivery firm. As this firm moves off the diagonal
and the service package moves toward the 'selective'
position, there is a visual indication that there must
be a change in the service process structure or some
other accommodation must be made. On the other
hand, consulting firms have recognized the advan-
tage of limiting the customer influence on the service
system and have created 'modules' which the con-
sultant merely assembles as needed. These firms
have moved down the diagonal, offering a less cus-
tomized service with a process that intentionally
limits the customer influence.
3.1. Strategic operational characteristics
The service process structure embodies important
strategic operational characteristics. Through discus-
sion and research propositions, we illustrate that a
number of key issues such as technology, facility
layout, job design and capacity management can be
unified along this service process dimension.
The service process dimension has parallels with
the technological framework proposed by Thompson
(1967). An 'intensive technology' is most often seen
in the expert service process. It is the continual
feedback from the customer that determines selec-
tion, sequence and timing of service operations and
delivery. To be successful, the expert service process
must not only have all potential service capabilities
available, but also combine them appropriately. The
service shop process resembles the structure of a
'mediating technology'. There are standardized ways
of doing things. The key is to successfully route
customers to the correct service operation. Finally,
the service factory uses aspects of a 'long-linked
technology'. While the serial interdependence in this
technological type may be difficult to find in the
service settings, there are observable similarities be-
tween the long-linked technology and the service
factory. The service factory attempts to rationalize its
technology to the point where the service process
can be standardized and repetitious, therefore, lead-
ing to high efficiency.
Proposition 1. Expert service processes use inten-
sive technologies; service shop processes use mediat-
ing technologies; and service factory processes use
long-linked technologies.
Strategic facility layout choices can also be
mapped onto the service process dimension. Facility
layout encompasses the physical arrangement of ma-
chines and work stations. The layout in an expert
service process must have the flexibility to adapt to
individual customer's varying needs and facilitate
the customer influence. Work stations are usually
multi-purposed in nature. Communication require-
ments and the need for privacy dictate layout. The
important consideration in service shop processes
would be the location of the various functions in
relation to each other. Most typically, the individual
customer, customer surrogate or employee would
travel between operations through various sequences
because each customer's service needs would dictate
a different set and sequence of steps. Layouts which
minimize an aggregate of travel times or distances
would be desirable. In the service factory, the pro-
cess steps are predetermined and set. The layout for
the service factory process focuses on a balanced
assignment of tasks among work stations. Once a
balance is achieved, the flow is fixed and capacity is
determined by the bottleneck.
Proposition 2. The design of the facility layout for
the expert service process is targeted at flexibility;
the design of the facility layout for the service shop
process focuses on the minimization of customer
travel distance between functions; the design of the
 D.L. Kellogg, W. Nie /Journal of OperationsManagement 13 (1995)323-337
facility layout for the service factory balances tasks
among work stations to achieve high utilization.
A third service operations issue that is embedded
in the customer influence continuum is the skill level
required of the service employee (Chase and Bowen,
1989). The expert service process requires special-
ized knowledge, typically acquired through years of
education and formal training. Not only are basic
interpersonal skills necessary but also diagnostic and
analytical skills are required. The service provider
must solicit customer ideas, interact with the cus-
tomer dynamically, analyze the customer's inputs
and, finally, use critical thinking skills to make
judgment calls. On the other end of the customer
influence continuum - the service factory process,
tasks are well defined. A certain level of technical
skills is desired as efficiency is important. These
skills can usually be obtained through on-the-job
training. Though the level of customer influence is
low, the customer may still be present. Basic inter-
personal communication skills are still necessary.
Proposition 3. The expert service process requires a
higher level of knowledge, technical skills, expertise
and judgment, while the service factory process re-
quires more basic technical training and interper-
sonal communication skills.
Lacking the benefits of inventories, service opera-
tions have a major challenge with capacity manage-
ment. A high level of customer influence brings
great variability and unpredictability into the service
process, thus making capacity management more
difficult. Service firms using expert service processes
face not only the uncertainty of customer arrivals but
also the unique service requirements requested by
each customer. Because the expert service process
requires specialized knowledge, expertise and skills,
it is difficult to augment service capacity with tem-
porary labor or fixed automation (though some ex-
pert system software may bring an exception).
Cross-training is rarely an option, for an under-
utilized psychologist cannot be asked to perform
surgery. Though the uncertainty of customer arrival
rate is still present for the service factory processes,
the service time varies less widely. Temporary em-
ployees or cross-training of employees can be effec-
329
tive, as only moderate to minimal levels of training
are required. Tasks are rationalized to the point
where procedures could be easily and quickly mas-
tered. Furthermore, technology and self-service are
often utilized to alleviate the capacity problem. When
the waiting line for the bank teller is long, customers
are more likely to use the ATM.
Proposition 4. The expert service process is more
likely to use a level capacity strategy while the
service factory process is more likely to utilize a
chase demand strategy.
3.2. Off-diagonal positions
While main diagonal positions seem to offer the
fit between the service process and service package,
it is recognized that off-diagonal positions represent
viable strategic choices. With technological ad-
vances, it is possible for some service firms to
position in the off-diagonal and still remain competi-
tive. The new paradigm, mass customization, pro-
posed by Pine (1993) may indeed make off-diagonal
positions viable and even desirable. Specifically, in-
formation technologies make it quite easy and inex-
pensive to handle the data regarding individual cus-
tomer needs. This may allow considerable cus-
tomization with only a minimal amount of customer
influence.
Proposition 5. Technology, particularly information
technology, makes it possible for service firms to
offer a high level of customization with a minimum
level of customer influence on the service process,
thereby, making off-diagonal positions more viable.
4. Strategic competencies highlighted in the ma-
trix
Strategic competencies required for both the verti-
cal and horizontal dimensions are embedded in the
S P / S P framework. Examples of such competencies
are indicated on the bottom and right margins of the
S P / S P matrix in Fig. 2 and are discussed below.
These competencies are prescriptive rather than de-
scriptive.
330 D.L. Kellogg, IV. N& / Journal of Operations Management 13 (1995)323-337

ServicePackageStructure

ServiceProcessStructure Strategic
Unique / Selective I Restricted ] Generic
ServicePackag~ServicePackagelServicePackageI ServicePackag, Competency

Expert
Expertiseand Professionalism
SenAte Differentiation Hiringand Training
Prospector

EncounterManagement
Service
Shop Analyzer
Cost Control

Cost
Service
DemandManagement
Fac~ry Defender StandardizedProcedures

Strategic Economies Service Capacity Economies

of Package Management of
Competency Scope Design Scale
Flexibility Dependability
Fig. 2. Strategy implications.

4.1. Strategic competencies required by the service
process type
Along the service process dimension, the success
of the expert service process relies on the expertise
and experience of the service providers and therefore
requires special attention to hiring, training and re-
tention of employees. Organizational culture is the
paramount control mechanism in this process type,
as standard operating procedures may not be effec-
tive. Since the employee/expert is key to the suc-
cess of this type of service business, employee pro-
fessionalism is essential.
In the service shop process, the medium amount
of customer influence and mediating technology re-
quire competencies in managing service encounters
while controlling costs. Because individual service
operations are standardized, there is often a high
degree of investment in 'hard' technology. This high
investment necessitates high utilization. Effective
scheduling and efficient layouts can be used to
achieve high utilization. Layout issues, however, are
more complex than in the job shop of the manufac-
turing arena as one must also consider the customer's
movement and participation in the service process.
The Americans with Disabilities Act and access is-
sues put further restrictions on this problem. One
technique used in manufacturing layout design is the
use of group technology (GT). It is a technique that
can be creatively applied to and used in the service
shop such as performing cataract surgery in a hospi-
tal.
Because the customer is often physically present
in this process type, (s)he can often be required to
provide some of the labor, acting as a 'partial em-
ployee'. While this does not smooth demand, it does
bring labor where needed to augment capacity. Using
the customer as a partial employee calls for design-
ing the process in such a way that tasks required of
the customer are clearly understood and can be
accomplished easily. When the customer participates
in the process in a controllable or designated fashion,
service facility utilization can be increased and costs
can be reduced.
 D.L. Kellogg, W. Nie /Journal of Operations Management 13 (1995)323-337 331

In the service factory process type, the investment
in facilities and standardized operating procedures
are key to increasing efficiency. Because the cus-
tomer influence is less significant, adding less vari-
ability to the utilization problem, programmed solu-
tions are often possible and available. Yield Manage-
ment is one example of a programmed technique that
has been effectively used in both the airline and
lodging industries to manage capacity utilization.
One advantage of standardized procedures is to use
part-time employees when demand fluctuates and to
make employees 'interchangeable' through simple
training. However, even though customer influence
is low to non-existent, one cannot assume that there
is no customer contact. To achieve maximum effi-
ciency, there should be some latitude for employee
decision making, albeit in a very narrowly defined
arena.
4.2. Strategic competencies required by the service
package type
Along the service package dimension, there are
equally important strategic competencies that must
be considered to achieve long-term success. The
unique service package requires attention to
economies of scope and flexibility. At the extreme
end of the unique service package there is consider-
able discretion in all aspects of the service package.
The customer can specify where the service is to be
performed, what is to be done and how it is to be
done. The flexibility required to create a unique
service package is far more encompassing than the
flexibility one normally encounters in a product en-
vironment. The service organization which offers
unique service packages should recognize that all
parts of their organization, including the functions,
employees, policies and procedures, and the struc-
ture, need to work together to achieve this flexibility.
The selective service package will be successful
only if the various service options are well designed.
There is still considerable customer discretion. How-
ever, the service firm offering a selective service
package must make the customer feel as if (s)he gets
unlimited choices within certain well-defined param-
eters. This will allow the service firm to establish
some areas of standardization. The key to success is
to balance standardization against the customer's
needs for sufficient variety.
The restricted service package, having few op-
tions, must have competencies in matching supply
with demand. This service package does not meet the
needs of every customer. In general, these customers
trade discretion for price. They accept the limitations
in part because the price is right. Thus, efficiency
must be maintained in order to allow the firm to
keep prices low. These service firms move away
from economies of scope and more toward economies
of scale.
For the generic service package, utilizing scale
economies to achieve efficiency and focusing on
service dependability will be the primary competen-
cies. In the generic service, the customer certainly
expects a low price. At the far end of the generic
service type there is virtually no choice afforded to
the customer. These service firms will not be suc-

Table 3
Summary of strategic issues on the diagonal of SP/SP matrix
Strategic issue Unique service package
expert service process
Organizational flexibility Must be very flexible
Top managementskill Requires both management skills and
expertise or professional status
Employeemotivation Comes from professional or expert
status
Training Focuses on interdisciplinary tasks and
interpersonal skills
Hiring Screens potential employeesin-house
Technology Enhances effectiveness
Generic service package
service factory process
Can be rigid
Primarily requires managementskills
Comes from the organization
Focuses on repetitive, skill based tasks
Can delegate hiring task to outside
firms
Enhances efficiency
332 D.L. Kellogg, W. Nie / Journal of Operations Management 13 (1995) 323-337
cessful unless they carefully control costs. Addition-
ally, they must keep abreast of customer tastes and
demands. Because customization is minimal, the firm
needs to know they are offering a service package
that will be demanded by a sufficient number of
customers.
4.3. Strategic competencies on the main diagonal
There are additional strategic insights on the diag-
onal positions in the S P / S P matrix. These are sum-
marized in Table 3. The main diagonal on the S P / S P
matrix is a continuum which begins at the upper left,
unique service package/expert service process, and
ends at the lower right, generic service pack-
age/service factory process. We postulate that seve-
ral issues of strategic importance vary with the posi-
tion on this diagonal. These issues include the neces-
sary amount of organizational flexibility, the man-
agement skills required, employee motivation, train-
ing, hiring and technology.
At the upper left corner of the continuum, the
organization must have a great degree of flexibility.
It can neither successfully operate an expert service
process nor create a unique service package without
flexibility. At the lower right end, the organization
can be rigid. The rigid nature of policies and proce-
dures, organizational structure, job descriptions and
reward structures gives this type of service firm the
ability to be quite efficient.
The skills required of top management differ based
on positions in the diagonal. At the upper left part of
the matrix, top management not only needs basic
management skills but also must have expert/pro-
fessional knowledge. At the lower right part, basic
management skills are required.
In terms of employee motivation, at the upper
right, motivation comes from the professional status
or expert nature of the work. The service firm does
not have to overly concern itself with cultivating and
maintaining employee motivation. Employees under-
stand their work and its importance through the
enculturation received when becoming an 'expert'. A
key management task is to develop a sense of not
only belonging to a 'profession' but also belonging
to the organization. At the lower right corner, moti-
vation comes directly from such factors as the firm's
reward systems, promotion policies and job descrip-
tions. Helping employees understand organizational
goals and installing organizational values in employ-
ees are important.
The human resource strategies also change along
the diagonal. Training goals change from a focus on
expert knowledge to an emphasis on routinized,
skill-based tasks. Hiring strategies also change. Be-
cause the 'fit' of the expert/employee is crucial,
screening prospective employees to fit in the finn's
culture and to match jobs with their skills is a critical
task. Moving down the diagonal, the hiring task
becomes less critical. Employees are screened for
their task-oriented skills and/or their ability to learn
necessary tasks. Often these firms use outside agen-
cies to perform this screening.
The strategy the firm follows when finding and
utilizing technology also changes along the main
diagonal of the matrix. There is typically a move
from pursuing technologies that increase effective-
ness to those that increase efficiencies.
Competencies on both the service process and the
service package dimensions for a given position in
the matrix must be considered simultaneously. Thus,
the SP/SP matrix provides a powerful management
tool which links the marketing and operations func-
tions to help the firm focus on important strategic
issues.
5. Links with existing service frameworks
Operations management generally, and service
operations more specifically, have been well served
by several strategy frameworks. The SP/SP matrix
has some similarities and differences with these
frameworks. This section compares and contrasts our
matrix with three relevant existing frameworks.
The framework which is most similar in structure
to the SP/SP matrix is the product/process matrix
(Hayes and Wheelwright, 1979a). The product/pro-
cess matrix links the manufacturing process structure
and stage in the process life cycle with the product
structure and stage in the product life cycle. The
matrix provides a linkage between a company's
manufacturing competence with its product and mar-
ket and serves as a basis for manufacturing firms to
make appropriate strategic choices (Hayes and
Wheelwright, 1979a, 1979b).
 D.L. Kellogg, W. Nie / Journal of Operations Management 13 (1995) 323-337
Linking the product structure with the process
structure in service settings integrates marketing is-
sues with operational issues. In this sense, the Hayes
and Wheelwright's framework and our S P / S P ma-
trix serve the same purpose. However, the applica-
tion of the manufacturing based product/process
matrix to service operations is limited due to the
unique nature of the service process. Several re-
searchers have pointed out that direct application of
theories and techniques developed from the manufac-
turing arena to the service area is inadequate
(Thomas, 1978; Anderson et al., 1989; Wemmerl~3v,
1990). As Thomas (1978) explicitly points out, the
use of product-based models and language to de-
scribe and manage service businesses restricts think-
ing in a way that limits innovative management
approaches.
An example can highlight the difficulties that can
arise if one uses the manufacturing-based imagery to
categorize and understand service operations.
Fitzsimmons and Sullivan (1982) use the product/
process matrix to categorize fire departments as ex-
amples of continuous flow processes. Fire depart-
ments are classified in this way because they are
available for service and operate 24 hours a day.
Time-wise, it resembles the continuous flow process.
However, if one considers the core fire fighting
service, each fire incident is different and requires
different responses and actions. There is no obvious
pre-determined linear flow for all fire emergencies.
If one were to envision a flow chart of this process,
it would have multiple decision points and a variety
of potential pathways. This is not the flow chart of a
continuous process. This is more of a flow chart of a
job shop.
Merely classifying fire fighting as a job shop is
also inadequate as the job shop category fails to
provide sufficient managerial insight. A job shop in a
manufacturing environment usually operates in isola-
tion of customers. Firefighters must deal with the
immediacy of real-time contact with customers. This
contact adds significant complexity that is not cap-
tured in the product/process matrix. The process
structure, while well defined for manufacturing envi-
ronments, provides an inadequate conceptualization
for service environments. Important dimensions of
service processes are at best only vaguely implied;
most often they are missing. Classifying service
333
processes into a matrix with definitions ill-suited to
the service environment will lead to misunderstand-
ing and loss of strategic insights.
In terms of the product structure, the
product/process matrix uses a product structure
which varies from low volume, low standardization
to high volume, high standardization. The S P / S P
matrix uses only customization. There is an increas-
ing ability to provide customers with 'mass cus-
tomization'. Combining volume with customization
does not give such a framework the ability to show
this opportunity. In addition the product/process
matrix uses the term 'product'. While one can con-
ceive of a service product, this gives the impression
of a singular tangible item. The S P / S P matrix, by
making use of the term 'service package' highlights
the multidimensional nature of service offerings.
An important service operations framework is the
customer contact model (Chase, 1981; Chase and
Tansik, 1983). In this model the degree of customer
contact is contrasted with both production efficiency,
an operations variable, and sales opportunities, a
marketing variable. The customer contact model is
crucial as it is the first to identify customer contact
as being the most important characteristic of service
operations. WemmerlSv (1990) reiterates the impor-
tance of customer contact, calling it the 'seminal
element' of services. Like the S P / S P matrix the
customer contact model highlights important opera-
tions decision variables.
The S P / S P matrix differs from the customer
contact model in the following ways. We extend the
customer contact dimension to the expanded notion
of customer influence. The customer contact model
uses only limited elements of operations (production
efficiency) and marketing (sales opportunities). The
S P / S P matrix expands these, considering additional
process and product variables.
Schmenner (1986) proposes the service process
matrix based on degree of labor intensity and degree
of interaction and customization. Like the S P / S P
matrix, it addresses specific management challenges
based on positions in the matrix. Although defined
differently, the service process names in the S P / S P
matrix have been borrowed from Schmenner's ser-
vice process matrix. Schmenner's insight in provid-
ing terminology which evokes powerful imagery is
gladly acknowledged.
334 D.L. Kellogg, W. Nie / Journal of Operations Management 13 (1995) 323-337

Table 4
Similarities and difference between frameworks
Framework
Product/process matrix (Hayes and
Wheelwright, 1979a)
Customer contact model (Chase, 1981)
Service process matrix (Schmenner,
1986)
Similarities
1. Similar structures exist - contrasting
the process structure with the product
structure.
2. Technological advances allow for
movement to off-diagonal positions.
1. Both use the notion of interaction or
contact with the customer to define the
service process.
2. Both show important links to opera-
tions management decision variables.
1. Both use customization.
2. Both use the concept of customer
interaction.
3. Process names are similar.
Differences
1. Product process structure varies from
job shop to continuous flow. Service
process structure is defined on the
basis of the level of customer influ-
ence.
2. Service product structure encom-
passes both the tangible and intangible
aspects of the service rendered.
1. The link with marketing is expanded
in the S P / S P matrix.
2. The customer influence in the S P / S P
matrix encompasses not only customer
contact, but also customer interaction
and customer participation.
1. Labor intensity is not included in the
S P / S P matrix.
2. Customization is one dimension in
the S P / S P matrix, whereas in the
service process matrix customization is
combined with customer interaction as
one dimension.
3. Marketing issues are not isolated on
one dimension.
4. Service package is explicitly consid-
ered.

The service process matrix does not clearly sepa-
rate operations concepts from marketing concepts.
Labor ratio is one variable used to define the service
process. While the labor ratio was once an often-used
measure for the complexity of a system and the
sophistication of the transformation technology, that
is no longer the case. Today's service industries are
becoming increasingly capital intensive and techno-
logically based (Quinn, 1992). The prime examples
have been communications, transportation, financial
services, health care and entertainment industries.
Many services have grown on the basis of their
improved technology. Technology, particularly infor-
mation technology, cannot only improve the labor
productivity but also enable service firms to offer
more variety in service products. For instance, air-
lines such as United, travel-bank services such as
American Express, and professional service providers
such as Arthur Anderson, have used their installed
facilities and information networks to extend their
services into a broad range of new activities. Simi-
larly, hospitals are using high tech equipment, labo-
ratory infrastructure and new medical discoveries to
handle a wider range of maladies and cures.
Customer interaction, combined with customiza-
tion, is the second defining variable in Schmenner's
service process matrix. The S P / S P matrix separates
customer influence from customization. It uses cus-
tomization to capture marketing issues, helping de-
termine how one defines, prices, promotes and dis-
tributes the service package. Table 4 summarizes
these similarities and differences.
6. Mapping strategic frameworks onto the S P / S P
matrix
The S P / S P matrix is rich in identifying the
strategic competencies for the operations function of
service firms. Additionally the S P / S P matrix has
 D.L. Kellogg, W. Nie /Journal of Operations Management 13 (1995) 323-337
close links with some common strategic frameworks.
The first strategic framework considered is that of
Porter (1980). Porter (1980) offers two fundamental
types of competitive strategies: cost leadership and
differentiation. This generic strategy framework is
generally regarded as an effective and efficient sim-
plification of the complex issues associated with
competitive positioning (Kotha and Ome, 1989). Cost
leadership and differentiation are uniquely positioned
on the S P / S P matrix found in Fig. 2.
Differentiation is an appropriate strategy for firms
positioned in the upper left comer. They should
focus on highly differentiated services. The essence
of the differentiation strategy is to create one-of-a-
kind, unique services (Fitzsimmons and Fitzsim-
mons, 1994). Differentiation does not ignore costs,
but rather emphasizes the quality and uniqueness of
the service at a cost that targeted customers are
willing to pay. The emphasis is on the value of the
service, rather than on its costs.
A cost leadership strategy is more suitable for the
firms positioning in the lower right comer of the
matrix. Cost leadership often relies on innovative
technology through which the cost of providing a
service can be lowered and economies of scale can
be reached. Technology not only refers to machines
and hardware but also (especially important in ser-
vice operations) to innovative ways of doing things
more efficiently and effectively. The essence of cost
leadership is to provide low cost of service, low
prices, standardized services and high volumes.
Proposition 6. Service f i r m s positioning in the upper
left corner o f matrix are more likely to pursue a
differentiation strategy, while f i r m s in the lower right
are more likely to use a cost leadership strategy.
When a company moves away from the diagonal,
it may be difficult to identify a competitive strategy.
Lack of a well-defined strategy will make a service
company vulnerable in the competitive market. It is
essential for a company to choose a position in the
matrix. For instance, both fast food outlets and
gourmet restaurants are in the food industry. The fast
food outlet may choose a position in the lower right
that offers a standardized service package and fo-
cuses on cost, while the gourmet restaurant may
choose a position in the upper left that offers highly
335
customized service and focuses on differentiation,
uniqueness and quality of the service.
Another familiar strategic framework comes from
Miles and Snow (1978). They identify four strategic
positions that a firm can take. Prospectors are exter-
nally oriented and innovative; they aggressively seek
growth opportunities. Defenders are internally ori-
ented and efficient; they adopt and protect narrow
and stable domains. Analyzers are also internally
oriented and efficient, however they do penetrate
new market opportunities after considerable analysis.
Reactors follow no consistent strategy.
These strategic types can also be mapped onto the
S P / S P matrix. This is also depicted in Fig. 2. The
upper left comer of the matrix is most suited to
Prospectors. The processes in place have the requi-
site flexibility to allow for innovation on a customer-
by-customer basis. The high customer influence usu-
ally includes enough actual contact or interaction
with the customer which helps these firms be exter-
nally focused.
Analyzers share competencies with the middle of
the diagonal on the S P / S P matrix. Again there is
usually some degree of actual customer contact or
interaction in this process type which provides the
necessary information and insights for them to move
into new markets. Because the service package is
less flexible, they do not have the ability to move as
quickly as Prospectors. When new opportunities are
seized, they must be well thought out, as the new
service package needs to be well defined.
Defenders have the closest fit with the lower right
comer of the S P / S P matrix. It is difficult for firms
positioning in the lower right to change direction
since the technologies are already in place and orga-
nizational structure tends to be quite rigid.
Reactors can be found in any position in the
matrix. However, it is likely that a Reactor might
find itself in danger of the 'drift' that is noted by
Hayes and Wheelwright (1984). That is, they have
moved off the diagonal without considering the con-
sequences of that decision. Unless they are able to
develop new competencies, they may be in danger of
floundering.
Proposition 7. The upper left corner o f the matrix is
more suited to Prospectors, the lower right corner to
336 D.L. Kellogg, W. Nie / Journal of Operations Management 13 (1995) 323-337
Defenders, and lying between these two positions to
Analyzers.
To summarize, the strategic implications of the
S P / S P matrix are the issue of alignment and the
identification of critical competencies. The S P / S P
matrix provides a visual representation of the various
strategic choices available. If the main diagonal rep-
resents the feasible set of strategic options, the S P / S P
matrix signifies a contingency approach to strategic
choice. If technological advances make positioning
in the off-diagonal areas feasible, the S P / S P matrix
remains useful in highlighting other possible strate-
gic choices and the complex competencies that are
required.
7. Conclusions
While services can be classified on any basis
possible to measure or estimate, the goal is to recog-
nize that different service organizations have some
common characteristics and managerial features
(Haywood-Farmer, 1988). Few frameworks exist in
the service operations literature that link operations
issues with marketing concepts and address the
strategic issues faced by service firms. In part, this is
due to the complex nature of services. A service
offering is actually a package of goods, facilities and
implicit and explicit services. In addition, the process
for producing a service is determined less by the
level or sophistication of the equipment used as by
the degree to which the customer influences the
service process. This paper has developed an S P / S P
matrix that incorporates these complexities.
This S P / S P matrix has significant strategic impli-
cations. First, the structure of the service package
must be aligned with the service process. We have
concentrated on explaining and discussing strategic
choices and competencies for firms positioning on
the main diagonal of the matrix in this paper. We
realize that it is possible for service firms to position
in the off-diagonal area and still have competitive
advantages. Future research efforts should be di-
rected to explore viable off-diagonal strategic
choices.
Second, the S P / S P matrix is compared and con-
trasted with the product/process matrix, customer
contact model and service process matrix. In doing
so, we illustrate the similarities and differences be-
tween the S P / S P matrix and other existing frame-
works and anchor reasons and support for our ap-
proach.
Third, we have identified strategic competencies
for both the vertical and horizontal dimensions. Man-
agerial issues such as organizational flexibility, the
management skills required, employees motivation,
training, hiring and technology are also discussed
along the diagonal of the S P / S P matrix. Porter's
generic strategy framework and Miles and Snow's
strategic framework are mapped onto the S P / S P
matrix to demonstrate its close link with other exist-
ing strategic frameworks.
Research propositions, though not meant to be
exhaustive, are formulated to enhance conceptual
development of the matrix and to pave a way for
future empirical research.
Acknowledgements
We gratefully acknowledge the assistance pro-
vided by Richard B. Chase, Yash Gupta, Jack
Meredith, Kim Bates, three anonymous reviewers,
and the associate editor.
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