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Meaning of Productivity
Productivity may be defined as the ratio of output of a production process to an aggregate value of input. Assumption: ‡ The output and the factors of perfectly defined ,homogenous and can be measured. ‡ It is assumed that there are no side effect beyond the satisfaction engendered by consumption of good produced.

The Consumer role in the Service Productivity: The goods are produced where as services are performed and the customer is involved when the services are provided. ‡ The productivity measures in services then require both quantitative and qualitative dimension. ‡ Many services setting qualitative Dimension of the service of product Business Consultants.etc). ‡ And many services used Qualitative and Quantitative mix.(Transportation,Insurance.etc)

The Production Framework

Effectiveness 1 Economy
g o a l s

Effectiveness 2 Efficiency 1


Resource Input

Combined Through a Production function

Intermediate Output



Capital Utilization



Customer Relationship Profitability
The basic assumption is the customer satisfaction drives profitability. The assumption is based on the idea that by improving the quality of the provider s service, customers satisfaction is improved. A satisfied customer creates a strong relationship with the provider and this lead to customer retention. Retention again generates steady revenues and by adding the revenues over time customer relationship profitability is improved. There is a conceptual framework which incorporates the basic sequence; Service Quality leads to Customer satisfaction, which leads to Relationship longevity which leads to Customer Relationship Profitability.

Service Quality Customer commitment Perceived alternative Patronage concentration Relationship revenue

Perceived value

Customer satisfaction

Relationship strength

Relationship longevity

Customer relationship profitability

Perceived sacrifice


Critical episodes

Episode configuration

Relationship costs

Quality,Productivity&Profitability Programme
A simple framework being undertaken by Gummesson and Colleagues shows the basic relationship, in financial term, b/w the triplets: ‡A concentration, by a service company, on productivity means that the company will took toward an effective use of resources and toward producing more for less. ‡A concentration, by a company, on service quality means that it will took toward satisfying customers and, through customer retention and loyalty, increasing revenue. ‡A concentration on profitability means that the company will address the combine effect of cost reduction and revenue generation. This should involve an active interest in both productivity and quality. According to the framework, all three elements of the triplats are pulling in the same direction.

Interaction b/w Productivity¶ Quality and Profitability
concerned with cost reduction

concerned with revenue generation

concerned with revenue generation & cost reduction

There are three tribes- the productivity tribe, the quality tribe and the profitability tribe. Expanding on Gummesson s arguments it is suggested that: ‡The productivity tribe are concerned primarily with issue of definition of productivity and the various mathematical to measure productivity. For example- the number of patients seen per hour in a surgery. ‡The quality tribe are concerned primarily with customer expectation, perception and level of satisfaction. ‡The profitability tribe, normally educated in accounting practice,are concerned primarily with the balance sheet and profit and loss statements, and short-term financial results. The recent research on Q,P and P programmes gave qualified support to the notions that:
‡productivity improvements leads to increased profits; ‡quality improvements leads to increased productivity; ‡quality improvements leads to increased profits.

Productivity Indicator.
Productivity is a measure of relationship between an input and an output. Productivity= output/input It is the standard measure that has been used by manufacturing industries for a very long time. Total Productivity=Total output/Sum of all inputs

‡ As total productivity is difficult to determine, more specific measures are used: P=Production/Machine hour P=Production / no. of employees P= Sales/ no. of square feet.

‡ Hotel Hotel ratio including labour , energy, capital and raw material mearsures.

Physical measures Labour Measure
Kitchen meal produced/ Kitchen Staff

Physical & Financial Financial measures measures
Restaurant revenue/ Hours worked in restaurant No. of cooked meals/ Total cooking costs Hotel revenue/ Total management salaries

Total guest rooms/ Total Kilowatt hours

Hotel revenue/ Total energy cost

Energy measure
Chips prepared/ Potatoes used No. of Bar customers/ Cost of liquor used Food revenue/ Cost of food consumed

Raw Material measure

Total Factor measure

No. of Satisfied customers/ Total Hotel customers

House count / Cost of contributing resources

Net profit after tax/ Cost of contributing resources

Improving Productivity
Five ways to increase productivity: ‡ Output increases faster than input ‡ Output remains unchanged with fewer inputs. ‡ Output increases from the same inputs. ‡ Input decreases more than output. ‡ Maximum increase in the ratio through an ideal combination of outputs and inputs.

Ways to improve productivity
‡ ‡ ‡ ‡ ‡ ‡ ‡ Improving Staff. Introducing Systems and Technology. Reducing Service Levels. Substituting Products for Services. Introducing New Services. Customer Interaction. Reducing the Mismatch between Supply and Demand

Service Profit Chain.