Economic Growth &

Development

Hemant Jog
Growth in country’s economy means increase in physical output or Production
 Introduction to Services
and Service Operations

Hemant Jog
Current Status – GDP % of various sectors in India
• The services sector is the largest sector
of India.
•Gross Value Added (GVA) at current
prices for the services sector is
estimated at 96.54 lakh crore INR(20-21)
The services sector accounts for 53.89%
of total India's GVA of 179.15 lakh crore.
With GVA of Rs. 46.44 lakh crore,
Industry sector contributes 25.92%.
While Agriculture and allied sector share
20.19%.
 Definitions of Service
 Services are economic activities offered by one party to
another, most commonly employing time-based
performances to bring about desired results in recipients
themselves or in objects or other assets for which
purchasers have responsibility. In exchange for their
money, time, and effort, service customers expect to
obtain value from access to goods, labor, professional
skills, facilities, networks, and systems; but they do not
normally take ownership of any of the physical elements
involved. (Christopher Lovelock and Lauren Wright)

 A service is a time-perishable, intangible experience

performed for a customer acting in the role of a co-
producer. (James Fitzsimmons)
 Role of Services in an Economy
FINANCIAL SERVICES INFRASTRUCTURE SERVICE
· Financing · Communications
· Leasing · Transportation
· Insurance · Utilities
· Banking

PERSONAL SERVICES
MANUFACTURING · Healthcare
Services inside company: · Restaurants
· Finance DISTRIBUTION · Hotels
· Accounting SERVICES
· Legal · Wholesaling
· R&D and design · Retailing
· Repairing CONSUMER
(Self-service)

BUSINESS SERVICES
· Consulting GOVERNMENT SERVICES
· Auditing · Military
· Advertising · Education
· Waste disposal · Judicial
· Police and fire protection
 Key Operations Principles
 Aggregation Principle
 The higher the level of aggregation of resources and
information, the more predictable operations becomes (e.g.
forecasts of total resources needed tend to be more
accurate than forecasts of individual resources). This is a
manifestation of the Central Limit Theorem.
 Uncertainty Principle
 The more uncertainty in operations, the greater the need to
employ extra resources to cope with this uncertainty.
Alternatively, the greater the stability and predictability, the
more efficiently operations can function.
 Efficiency Principle
 All else being equal, operations should function as
efficiently as possible.
 Distinctive Characteristics of Services
 Customer participation in the service process: attention to
facility design, opportunities for co-production, concern for
customer and employee behavior
 Simultaneity: process and outcomes are coupled, customer-
facing activities cannot be inventoried, increased importance of
matching capacity to demand
 Perishability: opportunity loss of idle capacity, capacity
utilization is a significant managerial challenge due to variable
customer demand and lack of inventory for absorbing fluctuations
 Intangibility: customers cannot assess quality a priori,
importance of reputation
 Heterogeneity: customer involvement in delivery process
results in variation in service from customer to customer
Compared to manufacturing, these characteristics introduce more
uncertainty into the operating system with fewer options for
managing uncertainty and create an operational focus on managing
the customer experience throughout the service delivery process.
 Service Package
The service package is a bundle of goods and services with
information that is provided in some environment. The
bundle consists of:
 Supporting Facility: The physical resources that must
be in place before a service can be sold. Examples are
golf course, ski lift, hospital, airplane.
 Facilitating Goods: The material consumed by the
buyer or items provided by the consumer. Examples are
food items, legal documents, golf clubs, medical history.
 Information: Operations data or information that is
provided by the customer to enable efficient and
customized service. Examples are patient medical
records, seats available on a flight, customer
preferences, location of customer to dispatch a taxi.
 Service Package
(cont.)
 Explicit Services: Benefits readily observable by the
senses. The essential or intrinsic features. Examples
are quality of meal, attitude of the waiter, on-time
departure.
 Implicit Services: Psychological benefits or extrinsic
features which the consumer may sense only vaguely.
Examples are privacy of loan office, security of a well
lighted parking lot.
 Open Systems View of Services
Service process Consumer Evaluation
Consumer arrivals departures
Consumer participant Criteria
(inputs) Consumer-provider (output) Measurement
interface

Control Monitor

Consumer demand Service operations manager Service personnel

Perceived needs •Production function: Schedule Empowerment
Alter Monitor and control process
Location supply Training
demand •Marketing function: Attitudes
Interact with consumers
Control demand

Modify as necessary
Define standard
Service package
Supporting facility
Communicate Facilitating goods Basis of
by advertising Information
selection
Explicit services
Implicit services
 Service Quality
 Reliability
 Responsiveness
 Competence
 Access
 Courtesy
 Communication
 Credibility
 Security
Edward Deming – Quality Guru describes it as continuous
improvement
Juran describes it as Fit for use.
Crosby describes it as Conformance to requirement
Americans say value received for dollars spent
Kaoru Ishikawa – most economical, most useful and always
satisfactory to the customer (product)
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 Service Quality - Dimensions
There are 5 dimensions
 Tangibility

 Reliability

 Responsiveness

 Assurance

 Empathy

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© Oxford University Press 2007. All
rights reserved. 39
 Gap in SERVQUAL
 Gap 1
 Insufficient marketing research
 Poorly interpreted information about audience’s expectations
 Research not focussed on demand quality
 Too many layers between front line personnel and top level
management
• Gap 2
 Insufficient planning procedure
 Lack of management commitment
 Unclear or ambiguous service design
 Unsystematic new service development process
• Gap 3
• Ineffective internal marketing
• Failure to match demand and supply
• Lack of proper customer education and training
• Deficiencies in human resource policies such as ineffective recruitment,
role ambiguity, role conflict, improper evaluation and compensation
system 40
 Gap in SERVQUAL
 Gap 4
 Over promising in external communication campaign
 Failure to manage customer expectation
 Failure to perform as per specifications
• Gap 5
 Is the product of gaps 1, 2, 3, 4. These separate the customers from the
company. If they are closed 5th gap also is closed.

41
 Service Process Indices
 Degree Of labour intensity is defined as ratio of Salaries
and wages per annum of people deployed in the
business to Gross fixed assets deployed in the business
(excludes land and building). e.g. airlines industry, hotel
industry, hospital, are low labour intensity examples.
Schools, retail chains (wall mart), commercial banking,
advertising agencies, consulting firms, portfolio banking
are high labour intensity examples.
 Degree of capital intensity is the reciprocal of degree of
labour intensity

46
 Service Process Indices
 Degree Of labour intensity is defined as ratio of Salaries
and wages per annum of people deployed in the
business to Gross fixed assets deployed in the business
(excludes land and building). e.g. airlines industry, hotel
industry, hospital, are low labour intensity examples.
Schools, retail chains (wall mart), commercial banking,
advertising agencies, consulting firms, portfolio banking
are high labour intensity examples.
 Degree of capital intensity is the reciprocal of degree of
labour intensity

© Oxford University Press 2007. All

rights reserved. 47
 Service Process Matrix
Low Degree of interaction and customisation High
Low Degree of interaction High Degree of interaction
Low And customisation and customisation
Low Degree of Labour Low degree of labour
Intensity intensity
Airlines Industry Hospitals
Degree Hotel Industry Garages
Of labour Trucking industry
Intensity
Low Degree of interaction High degree of interaction
and customisation and customisation
High degree of labour High degree of labour
High intensity intensity
Schools Doctors
Retail Chains Lawyers
Commercial banking Architects
Retailing Advertising agencies
Wholesaling Consulting firms
Portfolio banking
48
Features of different degrees of interaction and
customisation

 Low degree
 Marketing of “perception”
 Making the service warm
 Attention to physical surroundings
 Managing in fairly rigid hierarchy
 High degree
 Ensure Employee Loyalty

© Oxford University Press 2007. All

rights reserved. 49
 Features of different degrees of labour
intensity
 Low degree
 High maintenance skill set
 Scheduling service delivery
 Techno commercial skills (which, how much
capacity and when)
 Managing demand especially off peak
 High degree
 NO HR, Recruit, train, churning, some welfare
 Scheduling manpower

50
 Challenges for Service manager
Low Labor Intensity:
• Capital decisions
• Technological advance
• Managing demand peaks/off-peaks
• Scheduling service delivery

Low Interaction/Customization: High Interaction/Customization:

Service Service Shop
• Marketing • Fighting cost increases
Factory
• Making service “warm” • Maintain quality
• Attentions to physical surroundings Mass Service Professional • Response to customer interactions
• Maintaining SOP Service • Gaining employee loyalty

High Labor Intensity:

• Hiring
• Training & Method of development
• Employee’s welfare
• Scheduling workforce
 Strategic Service Classification
(Relationship with Customers)
Type of Relationship between Service Organization and
Its Customers
Nature of
Service Delivery “Membership” relationship No formal relationship

Insurance Radio station

Telephone subscription Police protection
Continuous delivery College enrollment Lighthouse
of service Banking Public Highway
American Automobile association

Long-distance phone calls Restaurant

Theater series subscription Mail service
Discrete transactions Commuter ticket or transit pass Toll highway
Sam’s Wholesale Club Movie theater
Egghead computer software Public transportation
 Strategic Service
Classification
(Method of Service Delivery)

Availability of Service Outlets

Nature of Interaction
between Customer and
Service Organization Single site Multiple site
Customer goes to Theater Bus service
service organization Barbershop Fast-food chain

Service organization Lawn care service Mail delivery

comes to customer Pest control service AAA emergency repairs
Taxi

Customer and service

organization transact at Credit card company Broadcast network
arm’s length (mail or Local TV station Telephone company
electronic communications)