SERVICE ORGANISATIONS

SERVICE ORGANISATIONS

1. SERVICE ORGANISATIONS IN GENERAL

2. PROFESSIONAL SERVICE ORGANISATIONS
3. FINANCIAL SERVICE ORGANISATIONS
4. HEALTH CARE ORGANISATIONS
5. NON PROFIT ORGANISATIONS
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1. SERVICE ORGANISATIONS IN
GENERAL

SERVICE ORGANISATIONS IN GENERAL

A. Definition:
Service organisations are those organisations that produce
and
market intangible services as distinguished from the
Manufacturing organisations that produce and market
tangible
goods.
B. History and importance of Service Orgs today:
In 18th and 19th century, employment of workforce was
Predominantly agriculture; in early 20 th century this shifted
to
Manufacturing; and by 2005 this has shifted to the services
Sector.
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SERVICE ORGANISATIONS IN GENERAL

C. Characteristics:
1. (a) Absence of inventory buffer: a manufacturing firm can
revenue from the products that are not sold today, but an
airplane seat, a hotel room, a hospital operating room,
or the
hours of lawyers, physicians, scientists and other
professionals that are not used today are gone forever.
(b) Costs of many service organisations are essentially
fixed
costs.
(c) hence, it is important to match current capacity
with
demand say by offering discounts on unutilised
capacity
today
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SERVICE ORGANISATIONS IN GENERAL

2. Difficulty in controlling quality & customer satisfaction:

Quality of a manufacturing product can be measured and
inspected before despatch; not so in case of services. Also
customer satisfaction in services is often subjective- e.g.,
Customers of a restaurant would have a variety of judgements
on customer satisfaction, although no one may deny that the
quality of food was good.
3. Labour intensive: Manufacturing companies, over a period of
time have automated and reduecd labour, but service sectors are
usually labour intensive
4. Multi-unit Orgs: various units at various locations, each
Relatively small e.g., fast-food chains, courier services, etc., some
are owned, others are franchised
5. MCS in service sectors is recent.
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2. PROFESSIONAL SERVICE
ORGANISATIONS

PROFESSIONAL SERVICE ORGANISATIONS

Professional service organisations mainly comprise Research&

Development Orgs, law firms, healthcare orgs, engineering
Services firms, architectural firms, consulting firms, advertising
agencies, sports orgs, etc.
Special Characteristics:
1. Goals: Principal asset is the skill of the professionals, which
does not appear in the balance sheet. Tangible assets are
relatively few. Hence return on assets is not relevant.
(a) Financial goal is to adequately compensate its professionals.
(b)In many orgs goal is to increase size (e.g., large accounting
firms)

PROFESSIONAL SERVICE ORGANISATIONS

2. Professionals: Professional organisations are people intensive

with the people having different skills. In some cases, the people
work in teams and in other case, they work independently e.g.,
an audit of a large firm may be done by a team of chartered
accountants of an accounting firm, whereas the valuation of a
small firm may be done by an independent valuation expert.
The education of most professionals is not management but
specialised faculties such as accounting, law, architecture.
3. Output and Input measurement: Measurement of both output and
input is not straightforward. Output is generally measured in terms
of revenue. Input could be in terms of hours spent in the assignment.
However, this cannot be generalised since the assignments are not
necessarily repetitive.

PROFESSIONAL SERVICE ORGANISATIONS

4. Small Size: Except few exceptions such as some law firms and
some accounting firms, most professional orgs are small in size,
and operate at a single location. Hence there is less need for an
elaborate MCS, and the objectives are met through simple
regular budgets.
5. Ethical code limiting Marketing: in some Professional Service
orgs, certain ethical codes restrict overt marketing efforts. Thus
It is difficult to assign proper revenue responsibility centres.
Although such restrictions do exist, firms do reward those
professionals who are responsible for bringing in new customers
or assignments.

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PROFESSIONAL SERVICE ORGANISATIONS

MCS in Professional Service Orgs:

In general, formal strategic planning systems are not as well
developed in professional orgs as in manufacturing companies,
Primarily because there is no need for the same. The principal
assets being the professionals changes in size of the org are
easier than in a manufacturing company.
In many professional orgs, the main emphasis is on hourly billing
Rate and billed time on which basis the budgets are built and
actuals are recorded for assessment of variance and control. On
this basis, performance measurement and appraisal are made;
nevertheless, there is a large element of subjectiveness since the
nature of business calls for it.

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3. FINANCIAL SERVICE ORGANISATIONS

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FINANCIAL SERVICE ORGANISATIONS

Financial service organisations include commercial banks,
insurance companies and securities firms. These companies
are
in the business primarily to manage money.
Features:
1. Financial services sector constitutes a backbone to the
countrys economy
2. Organisations in commercial banking, investment banking,
insurance , retail brokerage have consolidated and grown
globally and are seen to grow into huge multinational
conglomerates.
3. Financial services sector has used information technology
extensively to innovate products and discover new methods of
trading .

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FINANCIAL SERVICE ORGANISATIONS

4. Need for control has become paramount, since their
dysfunctioning can hurt a major section of the economy;
e.g.,Asian crises. In 1990s, collapse of Barings bank in 1995.
(Barings Bank(1762 to 1995 233 yr old) was the oldest
Merchant bank inLondon; the bank collapsed in 1995 after one
of the bank's employees,Nick Leeson, lost 827 million ($1.3
billion) (Rs. 7020 crores) due to speculative investing, primarily
infutures contracts)
MCS is applicable in the normal form; however, the following features
have to be kept in view:
Special Characteristics:
1. Monetary assets: Unlike plant and machinery, which are the
assets of a manufacturing company, the assets of financial
service orgs are monetary the extreme example of fungibility
(exchangeability).
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FINANCIAL SERVICE ORGANISATIONS

2. Time period of transactions: Bond issue: 10 yrs; mortgage
loan: 15 yrs; insurance : 30 yrs. During this period, many
changes
may take place: what seemed valuable may not remain so in
the
course of the tenure.
On the other hand, there may be transactions where the
traders
decisions are rewarded/punished in few seconds of the trade.
3. Risk and reward: The main business centres around risk and
reward. Greater the risk, greater the reward.
4. Technology: Technology has revolutionised the financial
services sector. E.g., ATMs, insurance and mutual funds have
developed electronic market places.

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