Chapter 06

Service Quality Operations

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 Learning Objectives:
Global Company Case:
1. Introduction
2. What is Service?
3. Service Design Process
4. Lean Service Philosophy
5. Moment of Truth
6. Service Quality Gap Model
7. The Service Encounter Triad
8. Unethical Bahaviours
9. Service Profit Chain
10. Costs of Service Quality
11. Unconditional Service Guarantee
12. Service-Dominant Logic

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 1. Introduction

An operations manager’s objective is to build a total quality management system

that identifies and satisfies customer needs

Operations Strategy: Quality

Quality is a strategic imperative for organizations

Quality is a never-ending journey

Customer satisfaction ≠ customer loyalty

Quality is accepted in Organizations as

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 2. What is Service?

Services are deeds, processes, and performances.

Valarie Zeithaml & Mary Jo Bitner

A service is a time-perishable, intangible experience performed for a customer acting in the

role of a co-producer.

James Fitzsimmons
Service Quality

The Operations Manager must recognize that:

1. The tangible component of services is important

2. The service process is important

3. The service is judged against the customer’s expectations

4. Exceptions will occur

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 How are Services Different?

• Everyone is an expert on services

What do People Want?

• friendliness and helpfulness
• Speed and convenience
• Price
• Variety
• Quality
• Unique
• Level

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 Applying Behavioral Science

• The end is more important to the lasting impression (Colonoscopy)

• Segment pleasure, but combine pain

• Let the customer control the process

• Follow norms & rituals

• Compensation for failures: fix bad product, apologize for bad service

Assessing Service Quality

• Audit service to identify Strengths and Weaknesses

• In particular, look for discrepancies between:

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3. Service Design Process

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 Service Design Process
1. Service concept
Purpose of a Service
• Simultaneity:
• Perishability:
• Intangibility:
• Heterogeneity:
• Customer Participation in the Service Process:
It defines Target Market
• Creates the option of renting a good upon demand rather than purchase.
• Service often involves selling slices of larger physical entities.
• Labor and expertise are renewable resources.
• Time plays a central role in most services.
• Service pricing should vary with time and availability.
Question: Can services in general be described as customers sharing resources?
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 2. Service Package
• Supporting Facility:
• Facilitating Goods:
• Information:
• Explicit Services:
• Implicit Services:

3. Service specifications
3.1. Performance Specifications

3.2. Design Specifications

3.3. Delivery Specifications

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 4. Lean Service Philosophy
1. Satisfy the needs of the customer by performing only those activities that add
value in the eyes of the customer.
2. Define the “value stream” by flowcharting the process to identify both value-
added and non-value-added activities.
3. Eliminate waste. Waste in the value stream is any activity for which the customer
is not willing to pay.
7-Steps to achieve Lean Service
1. Identify the key processes in your organization.
2. Select the most important processes and order by importance.
3. Analyze how the process can be changed to move toward perfection.
4. Ask what changes will be needed to sustain the “future state” process.
5. Implement the necessary changes to create the “future state” process.
6. Determine what you will do with excess people and assets.
7. Start the cycle again.

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 5. Moments of Truth
• Each customer contact is called a moment of truth.
• You have the ability to either satisfy or dissatisfy them when you contact them.
• A service recovery is satisfying a previously dissatisfied customer and making them a loyal customer.

Dimensions of Service Quality

• Reliability:

• Responsiveness:

• Assurance:

• Empathy:

• Tangibles:

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 Perceived Service Quality
[Parasuraman, Zeithaml and Berry, 1985]

The Gap between expected and perceived service is a measure of service quality; Satisfaction
is either negative or positive.

Word of Mouth Personal Needs Past Experience

Expected Service Quality Assessment:

Service Quality Dimensions: service 1. Expectations exceeded
Reliability ES<PS (Quality surprise)
Responsiveness 2. Expectations met
Assurance Perceived ES~PS (Satisfactory quality)
Empathy service 3. Expectations not met
Tangibles ES>PS (Unacceptable quality)

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 6. Service Quality Gap Model
Service Quality Gap Model
[Professor Uttarayan Bagchi, University of Texas, Austin)

Customer Customer Satisfaction Customer

GAP 5
Perceptions Expectations

Managing the Customer / Understanding

Evidence Communication Marketing Research the Customer
GAP 4 GAP 1

Service Management
Perceptions
Delivery of Customer
Expectations
Conformance
Design GAP 2
GAP 3
Conformance Service Design
Service
Standards

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Gap 1: Customer/Marketing Research
Arises from management’s lack of full understanding about how customers
formulate their expectations on the basis of a number of sources: (Advertising, past
experience with the firm and its competitors, personal needs, and communications
with friends)

Gap 2: Service Design

Results from management’s inability to formulate target levels of service quality to
meet perceptions of customer expectations and translate these into workable
specifications.

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Gap 3: Conformance
Occurs because actual delivery of the service does not meet the specifications set
by management.

Gap 4: Communication
Arises from discrepancy between service delivery and external communication in
the form of exaggerated promises and lack of information provided to contact
personnel.

Gap 5: Customer Satisfaction

It is a gap between customer expectations and perceptions (It should be positive)

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 7. The Service Encounter Triad
The Service Encounter Triad: Adapted from [John E.G. Bateson, “Perceived Control and the Service Encounter”] [From: Czepiel J.A.,
Solomon, M.R. and Surprenant 91985). “The Service Encounter”, Lexington Books, Pg 76.]

It captures the relationships between the Three Parties in the Service Encounter and suggests
possible sources of conflict.
Angle 1:Service
Organization
 Culture or Identity
Control  Empowerment-Employees
Efficiency
versus  Control System versus
autonomy  Supporting Technology satisfaction
 Performance Evaluation

Angle 3: Contact
Service Delivery Angle 2: Customer
Personnel
 Selection  Perceived Control  Expectation
 Training  Role of Scripts  Attitudes
 Ethical Climate  Outcome  Co-production
 Failure recovery

Note: Perceived control determines if a relationship or encounter is established between

contact personnel and customer.
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 Angle 1: Service Organization
• Management Challenge
• Communicate core values and mission
• Specify and enforce rules
• Build and support clear targets
• Open organizational dialogue to encourage learning
Key Issues:
• Identify core values
• Risks to be avoided
• Critical performance variables
• Strategic Uncertainties
1. Culture:

2. Employee Empowerment:

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 Organizational Control
Four Organisational Control Systems to encourage creative employee empowerment:

1. Belief System:
2. Boundary System:
3. Diagnostic Systems:
4. Interactive Control System:
Frontline Personnel should exhibit the ability to take responsibility, manage themselves, and respond to
pressure from customers.

Control Objective Employee Management Key Issues

System Challenge Challenge

Belief Contribute Uncertainty about purpose Communicate core values Identify core values
and mission

Boundary Compliance Pressure or temptation Specify and enforce rules Risks to be avoided

Diagnostic Achieve Lack of focus Build and support clear Critical performance
targets variables

Interactive Create Lack of opportunity or fear Open organizational dialogue Strategic Uncertainties
of risk taking to encourage learning

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 Angle 2: The Customer
Expectations and Attitudes
1. Economizing customer:
2. Ethical customer:
3. Personalizing customer:
4. Convenience customer:
Customer Decision-Making Processes with Choice
(Self-service Option vs Traditional Full-service Approach) Pick n Pay???
5. Amount of Time involved
6. Customer’s Control of the situation
7. Efficiency of the Process
8. Amount of Human Contact involved
9. Risk involved
10. Amount of Effort involved
11. Customer’s Need to Depend on others

• Customer as Coproducer
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 Angle 3: Contact Personnel
Employee Challenge
• Uncertainty about purpose
• Pressure or temptation
• Lack of focus
• Lack of opportunity or fear of risk taking

Selection
1. Abstract Questioning:
2. Situational Vignette:
3. Role Playing:
Training
4. Unrealistic customer expectations
5. Unexpected service failure:

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 Challenges on Interactions with Customers

Unrealistic customer expectations Unexpected service failure

1. Unreasonable demands 1. Unavailable service

2. Demands against policies 2. Slow performance
3. Unacceptable treatment of 3. Unacceptable service
employees
4. Drunkenness
5. Breaking of societal norms
6. Special-needs customers

Use scripts to train for proper response

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 8. Unethical Behaviours
Misrepresenting the Nature of
the Service
• Promising a nonsmoking room when
none is available
• Using bait-and-switch tactics
• Creating a false need for service
• Misrepresenting the credentials of
the service provider
• Exaggerating the benefits of a
specific service offering
Customer Manipulation
• Giving away a guaranteed
reservation
• Performing unnecessary services
• Padding a bill with hidden charges
• Hiding damage to customer
possessions
• Making it difficult to invoke a
service guarantee
General Honesty and Integrity
• Treating customers unfairly or
rudely
• Being unresponsive to customer
requests
• Failing to follow stated company
policies
• Stealing customer credit card
information
• Sharing customer information
with third parties

Ethics and Quality Management

Operations managers must deliver healthy, safe, quality products and services (Defective Products)
Poor quality risks injuries, lawsuits, recalls, and regulation (Substandard products)
Organizations are judged by how they respond to problems
All stakeholders much be considered
Poor designs
Shoddy workmanship
Substandard material and parts

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 9. Service Profit Chain
It proposes a relationship that links profitability, customer loyalty, and service value
to employee satisfaction, capability and productivity.

What is the meaning of this statement?

 Profitability and revenue growth are derived from loyal customers
 Loyal customers, in turn, result from satisfaction that is influenced by the
perceived value of the service.
 Satisfied, committed, capable and productive employees create service value.
 Satisfied and loyal employees begin with selection and training.

 What is required:- Investment in information technology, and other workplace

support that allow decision-making latitude to serve customers

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 Satisfaction Dualism

Higher Customer Satisfaction Higher Employee Satisfaction

More repeat purchases ↔ More familiarity with customer

needs and ways of meeting
them
Stronger tendency to ↔ Greater opportunity for
complain about service errors recovery from errors

Lower costs ↔ Higher productivity

Better results ↔ Improved quality of service

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 Satisfaction Mirror

More More Familiarity with

Repeat Customer Needs and
Purchases Ways of Meeting Them

Stronger Tendency Greater Opportunity

to Complain about for Recovery
Service Errors from Errors

Higher Customer Higher Employee

Satisfaction Satisfaction
Lower Costs Higher Productivity

Better Results Improved Quality

of Service

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 Service Profit Chain Model
Most applicable to service environments. Model is based on a set of cause and effect linkages between internal and external
performance, and defines the key performance measurements on which service-based firms should focus.

Internal Value External

Operating strategy and Service
Concept Target market
Service Delivery System

Loyalty
Customers Revenue
Satisfaction growth
Productivity
& Service
Employees Satisfaction Loyalty
Output value
Capability quality
Profitability

Service
quality

Customer orientation/quality Quality & Attractive Value Lifetime value

emphasis productivity Service designed Retention
Allow decision-making latitude improvements & delivered to Repeat Business
Selection and development yield higher meet targeted Referrals
Rewards and recognition service quality and customers’ needs
Information and communication lower cost Solicit customer
Provide support systems feedback
Foster teamwork
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 Critical Success towards Service Profit Chain Modelling

1. Internal quality drives employee satisfaction

2. Employee satisfaction drives retention and productivity

3. Employee retention and productivity drives service value

4. Service value drives customer satisfaction

5. Customer satisfaction drives customer loyalty

6. Customer loyalty drives profitability and growth

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 10. Costs of Service Quality
(Bank Example)

Failure costs Detection costs Prevention costs

External failure:
Loss of future business
Negative word-of-mouth
Liability insurance
Legal judgments
Interest penalties
Process control Quality planning
Peer review Training program
Supervision Quality audits
Customer comment card Data acquisition and analysis
Inspection Recruitment and selection
Supplier evaluation

Internal failure:
Scrapped forms
Rework

Recovery:
Expedite disruption
Labor and materials

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 11. Unconditional Service Guarantee:

Customer View
• Unconditional
• Easy to understand and communicate
• Meaningful
• Easy to invoke
• Easy to collect (Manpower)

Management View
• Focuses on customers
• Sets clear standards
• Guarantees feedback (Manpower)
• Promotes an understanding of the service delivery system
• Builds customer loyalty by making expectations explicit

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 12. Service-Dominant Logic
S-D logic (Metz, 1998) refers that:
• SCM is moving into a ‘‘super’’ role, which integrates the functions of marketing,
product development and customer service.
• S-D logic looks at the very nature of service and accordingly
• S-D logic defines service as a process or as the use of one’s resources or
competences for the benefit of another entity (Vargo and Lusch 2004a).
• S-D logic (argues) that service is the basis of economic activity.
• S-D logic focuses on the process of service versus a goods-dominant (G-D) or
manufacturing logic that focuses on the production and provision of outputs.
• What customers want is access to the flow of service that these goods facilitate
and not necessarily the output or product that firms produce.
• It can be argued that the movement from G-D logic to S-D logic is the move
from viewing business as focused on things (nouns) to actions and processes
(verbs).

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 Foundation Premises of Service-Dominant Logic

1. Service is the fundamental basis of exchange.

2. Indirect exchange masks the basis of exchange.
3. Goods are distribution mechanisms for service provision.
4. Operant resources are the source of competitive advantage
5. All economies are service economies.
6. The customer is always a co-creator of value.
7. The enterprise can only offer value propositions.
8. A service-centered view is customer oriented and relational.
9. All economic and social actors are resource integrators.
10. Value is uniquely determined by the beneficiary.

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 Service-Dominant Logic & IT
• Economic growth has largely been driven by growth in knowledge and information
technology (Mokyr, 2002).
There are seven primary reasons why IT growth enables the expansion of service
ecosystems consistent with the principles of S-D logic (Lusch et al. 2010).
1. As information technology increases, goods become embedded with microprocessors and
intelligence and become improved platforms for service provision (e.g., digital
manufacturing, start/smart parts that embed intelligence, collaborative design through
virtual modeling, idea generation through virtual conference rooms and product lifecycle
management).
2. As information technology increases, the ability to self-service rises.
3. As information technology increases, the ability to serve others rises.
4. As the ability to communicate increases, the need to transport decreases.
5. As the ability to communicate increases, the ability to know customers and suppliers rises.
6. As the ability to communicate increases, the ability to interact directly with customers and
suppliers rises.
7. As the ability to communicate at lower costs increases, coordination between firms
becomes more efficient and responsive.
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 Benefits of Information Systems Technology
1. Cost Reduction and Efficiency gains
2. Data Accessibility
3. Speedier Communication
4. Dedicate Resources to Strategic Issues
5. Data Accuracy
6. Systems Integration
7. Monetary Control

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 Innovation for Service Quality
National Institute of Standards and Technology (NIST) defines Cloud Computing (CC) as – a
model for enabling ubiquitous, convenient, on-demand network access to a shared pool of
configurable computing resources (e.g. networks, servers, storage, applications and services)
that can be rapidly provisioned and released with minimal management effort or service
provider interaction.
 Private CC
 Public CC
 Community
 Hybrid CC
 Individuals]
NB: Advocates of Cloud solutions claim that it provides the advantages of Lower Costs and
Increased Flexibility.
Three Main Elements of CC to Supply:
1. Software as a Service (SaaS)
2. Platform as a Service (PaaS)
3. Infrastructure as a Service (IaaS)
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 1. Software as a service (SaaS)

Software as a Service (SaaS)

[Applications that reside in the cloud, which users are able to rent on a pay-for-use basis.
SaaS is the largest and most mature part of closed computing].

It gives relief to the supply chain firm of the requirements:

 To acquire and maintain either the software or hardware
 The need for training on its internal integration and operation
 It lower asset requirements and the cost of maintaining expertise
• The SaaS provider must meet the technical and operating requirements of the supply
chain firm.

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Benefits and Considerations to Software as a
Service (SaaS)

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 2. Platform as a Service (PaaS)

Platform as a Service (PaaS)

[ Software development technologies that allow users to create

customized processes or tools specific for their needs].

• Platform-as-a-service (PaaS) is another step further from

full, on-premise infrastructure management.
• It is where a provider hosts the hardware and software

PaaS allows the user to develop, run, and manage their own
apps

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 Infrastructure as a Service (IaaS)

Infrastructure as a Service (IaaS)

[Shared server capacity that permits the sharing of
computing power and storage and that can be
accessed as needed on a pay-for-use basis].

• Infrastructure-as-a-service, or IaaS, is a step away

from on-premises infrastructure.
The main drawbacks to IaaS are the possibilities of
provider security issues
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 Information technology - Better
Synchronization and Lower inventory levels
• Better synchronization and lower inventory levels have been achieved.

Information technology is of great assistance in moving towards a pull model as it influences the
downstream supply chain through the 6I’s of e-business:

• Intelligence –

• Interactivity –

• Integration –

• Individualisation –

• Independence (from location) –

• Industry (structure) –

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