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Service Operations and Management

CHAPTER 1 INTRODUCTION

CONCEPT OF SERVICE
The economy nowadays is known as the service economy. This is due to the increasing
importance and share of the service sector in the economies of most developed and developing
countries. The growth of the service sector has long been considered as indicative of a country's
economic progress. Global economic history tells us that all developing nations have invariably
experienced a shift from agriculture to industry and then to the service sector as the main stay
of the economy This shift has also brought about a change in the definition of goods and
services themselves. No longer are goods considered separate from services. Rather, services
now increasingly represent an integral part of the product and this interconnectedness of goods
and services is represented on a goods-services continuum.

DEFINATIONS OF SERVICES

The American Marketing Association (1960) defines services as "Activities, benefits and
satisfactions which are offered for sale or are provided in connection with the sale of goods.”

According to Adrian Palmer (2008) "a service is the production of an essentially intangible
benefit, either in its own right or as a significant element of a tangible product, which through
some form of exchange, satisfies an identified need."

"A service is a time perishable, intangible experience performed for a customer acting in the
role of co producer". (Fitzsimmons & Fitzsimmons, 2011).

According to Fitzsimons "service is an activity or series of activities of more or less intangible

nature that normally, but not necessarily, take place in interactions between customer and
service employees and/or physical or goods and/or systems of the service provider, which are
provided as solutions to customer problems."

"Services are frequently described as performances by a provider that create and capture
economic value for solutions to customer problems." (Grönroos, 1990). Thus, services create
and capture economic value for both the provider and client. (Chesbrough & Spohrer, 2006).

According to Kotler (2006) "a service is any activity or benefit that one party can offer to
another that is essentially intangible and does not result in the ownership of anything." Service
thus is an intangible economic activity that creates or adds value to the offer and provides
satisfaction to the recipient of the service.”

Thus, a service offering is produced using the firm’s resources including both tangible and
intangibles assets such as knowledge, competence, and relationship. Service is a process of
applying the provider’s competence (knowledge and skills) for the benefit of and in conjunction
with the customer.”
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WHAT IS SERVICE CONCEPT?

The service concept is a mechanism that links operations and marketing, so it is

important that it is well defined and agreed so that marketing and operations can be
aligned. A service concept should provide sufficient detail to make it clear what the
organisation is selling/providing and what the customer is buying/receiving. Thus, the
service concept represents the nature of the service offering, which guides operations
staff and managers to know what to deliver and how to deliver it and helps marketing
know what to offer to the marketplace (see Figure 2.1).

The service concept needs to be aligned to the organisation’s ‘organising idea’. For
example, a store selling paint, tools and other items for home improvements may be
organised around ‘providing the cheapest hardware in town’ or ‘enabling the customer
to carry out high-quality home improvements. The first idea would require an operation
focused on ‘no frills’, efficiency and economy, whereas the second idea might require
investment in skilled sales staff to provide guidance for customers as to how best to carry
out their do-it-yourself (DIY) projects.

The detailed service concept may be based upon an explicit statement made by the
organisation or it may be inferred from marketing information – either direct marketing
by the organisation or indirect marketing through experience and word- of-mouth.

CHARACTERISTICS OF SERVICES

1. Intangibility: Services are intangible and do not have a physical existence. They
cannot be seen, tasted, felt, heard or smelt before they are bought and consumed.
The only information consumer has about the service are the promises of
satisfaction from the service provider. Intangibility of the service causes a great
deal of uncertainty for buyers. Buyers look at tangible components, such as people,
place, equipment and communication to reduce the uncertainty factor to an
acceptable level.
2. Variability; Variability is one of the key characteristics of the services. It is not
possible to deliver the same standard of service to every customer all the time. This is
mainly due to two factors- first, the human element involved in production and
delivery of the service as both service personnel and the customers are human being;
second the supply and demand for services greatly varies according to seasonality
factor and timing of the day. There are two types of variability in services: Variability
related to service provider and variability related to service customers.
3. Inseparability; refers to the fact that services are generated and consumed within the
same time frame, for example, a haircut is delivered to and consumed by a customer
simultaneously unlike, say, a takeaway burger which the customer may consume even
after a few hours of purchase. Moreover, it is very difficult to separate a service from
the service provider. For example, the barber is a part of the core service of a haircut
for his customer. Moreover, the place of production and consumption of services are
not separate. Because of the inseparability factor, the provider-customer interaction
is very important in-service marketing. The inseparability characteristic demands the
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presence of the service provider and the service seeker at the time of the service
delivery and transaction.
4. Perishability; Services cannot be stored, saved, returned or resold once they have
been used. Once rendered to a customer the service is completely consumed and
cannot be delivered to another customer. For example, a customer dissatisfied with
the services of a barber cannot return the service of the haircut that was rendered to
him. At the most he may decide not to visit that particular barber in the future.
Moreover, most of the services must be produced and consumed at the same time
and place. Airlines need to fly at the scheduled time even when only 20 percent of its
seats are sold. This factor also contributes to the variability problem because every
time a service product is delivered to the customer it takes a different shape.

TYPES OF SERVICES

Just as managing service operations involves the general set of challenges set out above, each
part of the service sector has its own particular set of problems. Managing a for-profit
consultancy with a small number of high-value clients poses rather different problems to
managing an aid agency in a disaster-struck, heavily populated region of a developing
country.
Each sector of the service economy (such as financial services, tourism, leisure, charities,
government, hospitals, business-to-business services) has its own set of specific challenges,
although of course much of the general theory and practice described in this book applies to
all operations. This section describes some of the differences between the various types of
services and outlines some of the particular challenges faced by each sector. In reading this
section, it is necessary to be aware that each of these services will also have issues relating to
aspects such as:
● The volume of transactions in a given time period. The hypermarket has very
different operation challenges from the local grocery store, not least in simply
managing the flow of hundreds of customers in the store.
● The mode of service delivery. The retail sector provides a good example of this
diversity, with face-to-face service in traditional stores, remote service through mail
order or telephone shopping, and, more recently, internet-based services.

Here we explore some of the key differences in service provision between five broad
sectors of the service economy (see Table 1.1):
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● business-to-business (B2B) services

● business-to-consumer (B2C) services
● internal services
● public services (sometimes referred to as G2C – government-to-consumer)
● not-for-profit services.
It is important to note that we use the term ‘customer’ as an all-embracing term that
covers users, consumers and beneficiaries, for example.

Business-to-business (B2B) services

B2B services are provided by businesses for other businesses or organisations. IBM
Global Services, provides a range of services to its business customers, including
computer installation and maintenance and a range of management consulting services.
Other B2B services include outsourced catering services, buildings’ maintenance or
leasing and supporting equipment, financial services and market research. Some of the
challenges for B2B services include:

• Dealing with multiple contacts in the organisation. Consultants may have to work
with a wide range of employees in their client organisations and so maintain
relationships at different levels in the organisation.
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• Working with a complex set of relationships. The users or recipients of a service

will frequently not be the purchasers, and this purchasing group may in turn be
different from those who commission or specify the service standards.
• B2B relationships may last for a long time. The challenge here is for the
relationship not to become too ‘cosy’, with the customer or supplier being taken
for granted.

Business-to-consumer (B2C) services

B2C services are those that individuals purchase for themselves or on behalf of another
individual. They range through leisure services such as hotels, restaurants and sports
provision, retail services such as shops and supermarkets, financial services such as
banks and insurance providers, through to professional services such as lawyers and
accountants. The challenges faced by most B2C services include:

• The organisation may deal with many different customers each day. Each have
their own special needs and expectations of service delivery and, to make matters
more difficult, these may change for the same individual from day to day.
• Because the operation serves so many customers, it faces a major challenge in
keeping the experience fresh for the next new customer. It may be the first and
only time the customer experiences this service, although the customer may be
just one out of hundreds that an individual member of staff sees in a day
• Many B2C service operations have the added complication of the need for
consistency across many points of contact with customers, frequently spread
nationally if not globally

Internal services

There are many services in large organisations that do not deal with the external
customer, such as personnel, finance, purchasing and IT support. These service functions
provide support services to the ‘value-adding’ parts of the organisation. A considerable
number of people are often employed by organisations to provide these services. The
particular challenges faced by these service operations include:

• Demonstrating that the internal service provides at least as good ‘value for money’
as an external alternative. This is a challenge faced by many IT departments, for
example, whose users often feel that they could obtain cheaper equipment more
rapidly from the local computer store or via the internet.
• Adapting the service to the business need. If the service provision is effectively a
commodity, it can be outsourced. Internal service providers must demonstrate
their ability to tailor their offerings to the changing business needs in a way that
external providers cannot.
• Gaining acceptance from their internal customers. Centrally funded services are
frequently viewed with suspicion by local operating units and may not receive the
co-operation required to carry out their tasks effectively.
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Public services (G2C)

These services are provided by central or local government for the community at large.
Funding comes through the various forms of business and individual taxation, which is
then largely allocated by policies set by government. Examples include police, prisons,
hospitals and education. Specific challenges for public sector services include:

• The provision of ‘best-value’ services. Public services are under continual

scrutiny. As a result, aspects of service operations that might be taken for granted
by their private sector colleagues must be carefully justified in these
organisations.
• Rationing supply of service. Public sector organisations cannot use the pricing
mechanism to regulate demand. With essential services, this can be a very
sensitive issue. The health service must make policy decisions as to how much
resource can be devoted to heart operations, to maternity services, and so on.
Expenditure on intensive care units and accident and emergency provision are
particularly sensitive since lives are at stake, but inevitably there will be times
when demand outstrips supply.
• Multiple stakeholders. Public services suffer from having many ‘customers. With
B2C services it is reasonably clear who the customers are, and if this group is
satisfied, generally speaking the organisation should be successful. This is not the
case with the public sector, where the recipients of the service, as individuals,
have little power to influence. Politicians and service managers themselves may
have far more power to decide current priorities.
• A confused service concepts. The service concept provides direction for the
organisation (we devote Chapter 2 to the discussion of the role of the service
concept). Some public services are provided for the good of society at large and
are not necessarily greatly loved by those who have to deal with them. Prisons,
police services and tax collectors may fall into this category.

Not-for-profit services

Charities of various types form the majority of these services. Most engage in a mixture
of fund raising, providing information about the cause or issue that concerns them, and
in some form of social action. An organisation such as Oxfam must gather funds for famine
relief and then organise to supply and distribute aid as required. Challenges for these
services include:

• Managing a workforce of volunteers who, though highly motivated, may not follow
the organisation’s procedures.
• Managing the allocation of resources to ensure that maximum funds flow to the
beneficiaries of the organisation, while developing effective processes and people.
• Dealing with differences between the activities that might influence and impress
donors, but which might conflict with the requirements of their ‘customers’.
• Working in a highly emotional area, sometimes being overwhelmed by demand
for service.
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Service processes

From an operations perspective we tend to be less concerned with the type of organisation
or the sector in which we are working and more concerned with the type of process we are
managing. Different processes provide us with different benefits and also different
challenges. Extremely flexible processes may be excellent for responding to a wide range of
special customer requirements but may be quite costly to maintain. On the other hand,
processes suited to delivering high-volume low-cost services are usually not very flexible.

Table 1.3 summarises some of the key differences between capability and commodity
processes.

Complexity: Refers to the level of difficulty involved in delivering a service. A service process
can be considered complex if it requires specialized skills, expertise, or technology to
execute. Complexity processes are uncertain and unpredictable. The process and operations
are complex and requires a high range of expertise to deliver these services. Examples for
these kinds of services are:
Police service, Detective services and so on.

Simplicity: Refers to the ease of delivering a service. A service process can be considered
simple if it requires few resources and is straightforward to execute. Serving few customers
with few services can create a firm to reach a point which demands expansion and
diversification. Though services adopting simplicity are easy to handle and manage but it
could be a great threat for the profitability of the business.
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Commodity: Refers to the standardization of a service. A service process can be considered

a commodity if it is widely available and offered by many organizations with similar quality
and cost.
Commodity processes are ideal for runners. These operations are exemplified by the high-
volume consumer services such as fast-food restaurants, general insurance providers and
retailers. The service concept for these organisations is of necessity clear and relatively rigid.
This particularly applies when service must be delivered across several service locations, by a
wide variety of service employees. commodity operations are much clearer in their definition
and marketing of the service concept. They will tend to compete on their ability to provide
consistent quality at a competitive price.

Capability: Refers to the capacity of an organization to deliver a service. A service process can
be considered a capability if it is a core competency of the organization and provides a
competitive advantage.
Processes that lie in the top left-hand corner of the volume/variety matrix (Figure 6.4) are
typically focused on providing a capability for their customers or users, rather than a ‘pre-
prepared’ service. As such they do not have the clarity of service concept that characterises
high-volume consumer services, but they have much more flexibility to change service
outcomes, service experience and service delivery processes. These processes are more
suited to managing strangers than runners. Examples of this type of service include:

● traditional professional services, such as lawyers or accountants, particularly those small

firms that deal with a wide variety of work for their clients

● companies that sell their creative ability, such as advertising agencies, software developers
and engineering design consultants

● organisations that adapt their capabilities to satisfy a wide range of customer needs, such
as consultants, counsellors and management development providers.

One of the challenges for service operations managers is to ensure that the type of process is
appropriate to deliver the service concept. As service concepts change and evolve, existing
processes may become less appropriate for the task in hand. Effective managers will
recognise this issue and proactively develop new process designs to meet the future
requirements.
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success of a service operation

We hope that it is becoming clear that service operations managers have an important and
responsible role:

• They are responsible for a large proportion of the organisation’s assets.

• They are responsible for delivering service to the organisation’s customers.
• They have a significant impact on the success of an organisation.

The success of service operations managers is not simply about performing a good technical
task, such as educating a student, delivering a project on time, or providing a safari holiday.
Success is also about making a wider contribution to the success of the organisation, in
particular:

• providing customer value

• delivering brand values
• making a financial contribution to the organisation
• delivering an organisational contribution.
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Ideally, of course, we would like to see all four types of contribution throughout the
organisation’s operations, but this is unlikely. What is important is that the service operations
manager is clear about the specific role each part plays at the present, and also how this
contribution might change in the future.

1. Customer value -Customer value has a range of components. Customers may

recognise value:

• when they receive something that they cannot do for themselves, such as generating
electricity or carrying out surgery
• when they receive a service that they do not have the time or inclination to perform
for themselves; for example, ironing shirts, shopping or arranging holidays
• when there is a reduction in perceived risk; risk might be perceived at a high level,
such as the value of a education consultancy sending students abroad.
• through a psychological or emotional advantage of dealing with a particular service
provider; for example, a woman may value the service of a doctor’s practice because
a female doctor is available
• from the status that they feel results from dealing with some service providers; for
example, being able to tell their friends that they dine at the most prestigious
restaurants or holiday in exotic locations.

A problem for service managers is that the customer’s idea of what represents value for
money may well vary from customer to customer and shift through time, and even from
day to day. At the most basic level, the economising customers will think of value as
getting more for their money. Other customers may be prepared to pay more in order to
receive a higher service specification. Still others will value the psychological value in
being able to say that they are able to afford to be customers of high-status services (even
though the specification may be no better than a lower priced service). The service
operations manager must be aware of the full range of influences on the customers’
assessment of value. A key element in this understanding is the relationship between the
service brand values as communicated to the customer and the potential mismatch in
terms of customer experience.

2. Brand values- As indicated in the previous section, service organisations are paying
close attention to the link between service delivery and desired brand values). Pringle
and Gordon (2001) outline three imperatives for what they term the ‘brand promise’:

• to create the brand

• to convey the brand
• to keep the brand.

They argue that brand promises must be kept at four levels:

• The rational level: the need to demonstrate and deliver desired customer experiences
and outcomes.
• The emotional level: the need to develop psychological benefits.
• The political level: the need to manage ethical and environmental issues.
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• The spiritual level: the need to relate to people’s ‘higher order’ needs.

Service operations must therefore consider how to build processes to deliver the brand
values. A major UK electrical retailer developed the brand promise ‘Currys, no worries’. An
aspect central to this initiative was the organisation’s home delivery service, recognising that
customers often experience significant hassle in arranging for their new freezer or washing
machine to be delivered at a convenient time.

Service operations managers therefore need to pay attention to the following:

• The extent to which the various attributes of customer value are reflected in the brand
values of the service.
• The extent to which these brand values are reflected in the design of the service
delivery system.
• The difference between the price the customer is willing to pay and the cost of the
service operation.
• The extent to which these customer values are understood by the service providers.

3. Financial contribution -The process of service delivery should generate revenue for
the organisation, either directly from consumers or indirectly from government,
sponsors or donors. If the service concept is well thought through, the service
operation matches the brand promise and the business model is sound, B2B and B2C
services should also generate a surplus (or profit) for the organisation. The amount of
this surplus will depend on the difference between the price the customers are willing
to pay, based on their perception of value, and the cost-of-service production. Service
operations managers have a central role in both generating revenue and in managing
the costs of production:

• Revenue is linked, directly or indirectly, to customer perceived value, which is

influenced by perceptions of the service experience and outcome, both of which
have to be designed and delivered by operations.
• The cost-of-service production is directly managed by service operations, and
service operations managers have a key role in the efficient use of resources.

In both these aspects, service operations managers can make a significant contribution to the
success of the organisation by being able to provide better customer perceived value and/or
by being efficient (or more efficient than their direct competitors).

4. Organisational contribution Creating customer value, creating brand value and

delivering a financial contribution are three important organisational contributions
that service operations managers make. They may also provide some broader
organisational contributions, such as:

• enabling the organisation to achieve its goals/objectives/mission

• enabling the functioning of the organisation through the provision of internal
services
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• supporting the organisation’s current strategic intent

• helping shape and develop the organisation’s future intent
• developing skills and competencies that will support the development of the
organisation.

5. Economic contribution - A final and important contribution, at a macro level, is

the contribution that services, in general, make towards a nation’s economy. Service
activities are a vital and significant part of most developing and developed economies.
In most developed countries services account for in excess of 70 per cent of gross
domestic product (GDP), and for over 50 per cent of GDP in developing economies.
They also pro- vide employment for a significant number of people. The challenges
facing service operations managers throughout the whole range of service
organisations – such as financial institutions, government bodies, retailers,
wholesalers and personal service providers – need to be taken seriously and managed
well to support economic success and development.

We can see that from the standpoint of economic value alone we should pay attention
to the service sector, and to service operations in particular as this is where the
service, and therefore wealth and value, are created. Services also have an important
economic role in non-service organisations. Many manufacturing companies have
significant revenue-earning service activities, such as customer support, and also
many service activities internal to the organisation, such as payroll, catering,
information and IT services etc. Indeed, it has been estimated that around 75 per cent
of non-service organisations’ activities may be directly or indirectly associated with
the provision of services. Service companies provide employment for the vast majority
of the working population in most developed and developing countries. Some service
organisations are indeed people-intensive in the sense of utilising large numbers of
relatively low-skilled employees to deliver service. However, many service sectors,
such as financial services, have begun to implement large information technology
projects to reduce headcount and increase productivity. In many economies the
service sector is the only area where new jobs are being created, notably in tourism
and leisure.

Finally, we cannot ignore the vast numbers of people employed in the public and
voluntary sectors. Managing services, such as education, health, fire, police, social
services, famine relief organisations, faith organisations and charities, requires as
much expertise as their private-sector counterparts. For example, governments
increasingly are subcontracting to the voluntary sector many services that were
previously provided directly by the state. In so doing, governments are applying
commercial approaches to supplier assessment, and there is therefore a growing
pressure on the voluntary sector to apply improvement methodologies (Chapter 12).
Although there may not always be as clear a definition of customers and customer
satisfaction, there is no doubt that there is ever-increasing pressure to provide higher
levels of ‘value for money’ with the same or reducing resources.
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Service as a strategic tool

Service can be used a very essential strategic tool. It can be used to:

• create organisational alignment

• assess the implications of design changes
• drive strategic advantage.

Create Organisation Alignment- The service concept can act as an alignment tool that
links together different organisational functions with a common purpose and ‘standard’
against which their actions can be checked. ‘In this respect the service concept acts as a lens
and filter through which internal functions may see each other’s roles and contributions to
the service delivered to the customer’. The articulation and agreement of a service concept
is a means not only of identifying the nature of the business but also of providing it with a
sense of purpose and common direction. It also provides a means of assessing the
contributions and interrelation- ships among the various functional groups. It also provides
explicit signals to customers, existing and potential, about what the service will be like and
the benefits they should expect. It is a means by which organisations can gain internal and
external alignment – by ensuring that all constituencies have the same or at least similar
‘service in the mind’.

Assess the implications of design changes- The service concept can be used as a
driver for long-term service development. By defining the concept, service designers can
compare it to alternatives, proposed or already provided by other service suppliers, to help
operations managers identify the implications of change. Whether the changes are deliberate
changes to the concept or an evolutionary approach with modifications to process or
procedures, changes to service concepts have implications for all parts of the organisation.
‘There is substantial evidence to suggest that significant changes to service concepts expose
the weaknesses in the organisation, its ability to co-ordinate all the various constituencies and
its capacity to communicate effectively both internally and externally’. It is rare that a change
to experience, out- come, operation or value can be made in isolation. Changes in one
element will have consequences in others. Sometimes these represent opportunity,
sometimes the potential for conflict. The use of the service concept and a profiling tool allows
the people involved in the design or redesign of a service to understand what is required and
to assess and therefore manage the implications of change.

Drive strategic advantage. Thinking about the service concept not only helps managers
understand their business but also challenges them to view their business in ways that can
make it stand apart from other organisations. By thinking carefully about the market, the
different customer segments and the needs of the customers in those segments, together with a
dispassionate under- standing of the core competencies of the operation, managers may be able
to develop totally new and innovative concepts that have great appeal to customers and give
the organisation a significant competitive edge.

Focused and unfocused service operations

Focused service operations

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Providing a narrow range of services is the most efficient way of designing and delivering
services. This can be a narrow range for a tightly defined market segment (see Figure
2.7), such as structural testing services for construction industries, or English language
courses for working mothers. Or alternatively it can be a narrow range of services for a
broad market segment – a ‘one size fits all’ service. (See Figure 2.8).

For example, MasterCard and Visa credit cards are held by a whole range of people from
low income to high income, low users to high users, personal users and corporate users.
Yet their operations are limited essentially to delivering credit facilities through the use
of a card accepted in retail outlets throughout the world: high-volume, relatively standard
and focused operations. Other examples include a fixed menu restaurant (with no
children’s meals or deviations from the menu, for example) or a consultancy company
that, while appealing to a wide range of industries, limits its operations to dealing with
very specialised problems, such as installation of accounting software.

In essence the service concept acts like a filter trying (not always successfully) to ensure that
the right customers with the right needs and expectations will be drawn into the operation. In
the case of providing a narrow range of services to a narrowly defined market, the service
concept has to be tightly defined to restrict the number and type of customers to those few for
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whom the limited range of services is entirely appropriate. A key role for marketers is to
understand the concept and find its market. A role for operations is to work out how to deal
with those individuals who sneak through the filter for whom the service is not appropriate.

In the case of delivering a narrow range of services to a wide market, the concept attempts to
attract as wide a customer base as is possible and appropriate and then filtering it into accepting
a narrow range of services (Figure 2.8). A key role for marketers is to ‘sell’ this narrow service
offering to as wide a market as possible. An issue for operations is to deal with the constant
pressure to be flexible and widen its service portfolio.

These approaches allow for focused operations – highly efficient, repetitive, standardised
services using a fixed mix of people, skills, equipment, materials and systems. Indeed, service
focus makes good sense: ‘Tight focus is imperative because you can’t provide great service
unless your business system is optimized to the needs of a certain segment. Focus provides
benefits both to the organisation, such as simplicity of operation, and to the customer, such as
high value at low costs (see Table 2.1).

Unfocused service operations

Through either a strategy of growth and development or strategic positioning many

successful service organisations have unfocused operations, which deliver a wide range of
services to either a narrow market segment or a wide market (see Figures 2.9 and 2.10).
American Express provides a wide range of products and services for the international
traveller. Coutts provides a full range of banking services but only for high-wealth individuals.
On the other hand, organisations such as doctors, local authorities, governments,
Disneyworld, supermarkets, hypermarkets, the internet, police services, leisure centres ... all
serve a very wide range of customers with a very wide range of services.

In the case of the narrow market, again the service concept has to act as a filter, filtering out
those customers who are not appropriate for the services. Organisations use credit checks or
income checks, while golf clubs may have handicap restrictions or require prospective
members to be nominated by existing members, to try to ensure that the customers conform
to the required specification. A key role for marketing is to understand the service’s
distinctiveness and find appropriate means of reaching appropriate customers. A key role for
operations is to deliver something distinctive but involving a wide range of services.
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The role of the service concept for unfocused operations appealing to a wide market segment
is not necessarily to restrict the customer base – indeed many organisations have little choice.
State hospitals and government service providers, for example, have to deal with everyone
who is in need of their services. The role of the service concept in these situations is more
about education and information, explaining how long the service might take and the other
alternatives, if any, that are available. A key role for marketers is to manage that information-
giving process. The key role for operations is in trying to create as efficient an operation as
possible while catering for diverse needs.

Difference between Goods and Services

Goods and services are an essential part of an economy, and these two terms are used in
most of the important economic discussions. There are many products that a consumer
purchases in order to fulfil their certain requirements. These products can be either in the
form of goods or services. Goods are tangible, as in these have a physical presence and they
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can be touched, while services are intangible in nature. The purpose of both goods and
services is to provide utility and satisfaction to the consumer.

The meaning of goods can be expressed in terms of economics, as any item that provides
utility and fulfils the needs of the consumer. Goods can be classified as durable and non-
durable based on their durability. Durable goods last for a long time while non-durable goods
perish sooner than durable goods. Goods involve transfer of ownership from the seller once
it is purchased by the consumer (buyer). There is a certain time period that is required for the
production of goods. Goods due to their tangible nature have a proper structure, size and
shape. They can be produced as per the market demand.

Services are the intangible and non-physical part of the economy that cannot be touched.
They are perishable in nature as they need to be provided at a moment when requested by
the consumer. Service lacks a physical identity and cannot be owned; it can only be utilised.
For e.g., when having dinner at a restaurant you can avail the concierge services but you do
not own the restaurant. In other words, there is no transfer of ownership in services and
unlike goods, services cannot be stored and utilised later. Also, services cannot be
distinguished from the service provider.
The following points of difference between services and goods can be discussed.

Critical Factors of Success For A Service / Service Business

1. Put yourself in your customer’s shoes to understand their needs and expectations: The
best way to understand our customer needs and expectations, to offer best in class service
support to them, is to put ourselves in their shoes. We need to offer the best quality of service
 18

care and support to our customers, as we would expect from a product/service organization,
if we were their customer.

2. Listen to your customers with patience, empathy and respect their views: At times,
organizations do not have the patience to listen to their customers. This happens when the
service support people are overloaded. However, if the service managers help their service
support people to balance their workload and enable them to invest quality time with the
customers and listen to them with patience, empathy and respect their views, the customers
will really feel wanted and cared for. This will also help us to understand our customer issues
well and resolve them appropriately.

3. Be responsive and adhere to your service commitments: We need to be responsive to

customer service requests and adhere to our service commitments and service level
agreements. Even if it takes time to resolve an issue, we should proactively keep the customer
informed about the delay and revised expected time for resolution, than burdening the
customer to follow up again and again.

4. Invest quality time in educating your customers, to understand your products/services

well, make best use of it and see business value: In many situations, customers only use a
small percentage of our product features and service options, mainly because they are not
aware of its full potential. The best way is to invest quality time in educating our customers
by demonstrating all the features of our products/services and help them make best use of it
and also see business value (e.g. cost savings, employee productivity, Return on Investment).
This will contribute to customer delight.

5. Do not look at customer complaints as problems, but as opportunities for

improvement: Customers have their own work to do and they really do not have the time to
just keep complaining to us. Once we understand this basic fact, we will start looking at each
complaint as an opportunity for improvement of our products and services. Many at times,
we come to know about a specific defect in a product/service (which would have missed our
testing) or a new feature idea (which we might not have thought about) comes from the end
customers, as they use it day in and day out.

6. Talk to your customers when there is no problem, show that you remember and care for
them: Most of the time we talk to our customers, re-actively, when they have a problem.
Instead, make it a point to periodically talk to your customers, proactively, when there is no
problem and ask them if everything is fine. This will be a pleasant surprise for them and will
help you to show that you really care for them and this will build their loyalty towards your
organization.

7. Ensure uniform customer service experience across all access channels: Irrespective of
whichever access channel the customer uses to reach out to your organization for service
support (e.g., Visit to your office, Website/Online, Mobile Apps, Contact Center Channels –
Phone, E-Mail, Chat, SMS etc) the user experience has to be uniform and consistent.
Customers would greatly appreciate the user friendly and personalized experience during
their interactions with your organization, across different access channels, from anywhere,
 19

anytime. Organizations can enable this through the right set of technologies and business
processes.

8. Take customer feedback periodically and continuously work on them: To ensure customer
satisfaction, it is important to take periodic feedback from our customers and continuously
work on the areas of improvement, while retaining our strengths, in offering customer service
support.

9. Involve your customers in evolving your customer service support strategy: We see
customers getting involved in the company’s product strategy. Similarly, involving them in
reviewing and improving your customer service strategy will go a long way to meet or exceed
their expectations.

10. Encourage and mentor your service support people to become customer advocates:
Service managers/supervisors should encourage and mentor their service support team
members to become customer advocates. Empower them to talk on behalf of the customers,
as they are on the ground, directly in touch with the end customers and know their
requirements and problems very well. This would greatly improve the customer relationship
and their satisfaction level.

11. Make your customers feel proud about your product and services: Our aim is to make
our customers, really feel proud of using our products/services. This will happen when they
like our products and services and start seeing its real value and benefits, by experiencing it
themselves.

Finally, as they say, if we do not take good care of our customers well, our competitors will.
On the other hand, if we invest quality time and effort to take good care of our customers,
as their trusted partner, they will in turn take care of us, by contributing to our business
growth, through their loyalty and advocacy for our products and services.

Service operations management

Service operations management is the term that is used to cover the activities, decisions and
responsibilities of operations managers in service organisations. These managers are often
called operations managers but many other titles are used, such as managing partners in
consultancy firms, nursing managers in hospitals, head- teachers in schools, fleet managers
in transport companies, call centre managers, customer service managers, restaurant
managers ... All these people have a number of things in common:

• They are responsible for the service operation – the configuration of resources and
processes that create and deliver service to the customer
• They are responsible for some of the organisation’s resources including materials,
equipment, staff, technology and facilities. These resources often account for a very
large proportion of an organisation’s total assets, so service operations managers are
responsible for much of an organisation’s cost base.
 20

• They are responsible for some or all of the organisation’s customers (sometimes
referred to as clients, patients or students, for example) and/or the things belonging
to their customers, such as their parcels or orders.
• They are also responsible for the goods and services delivered to their customers.

Thus, service operations managers are responsible for generating most, if not all, of an
organisation’s revenue/income. So the quality and effectiveness of service management
can be determined on the basis of two different parameter – service experience and
service outcome.

1. The Service Experiences- The service experience is the customer’s direct

experience of the service process and concerns the way the customer is dealt with by
the service provider. It contains aspects of how customer-facing staff interact with
customers and also the customer’s experience of the organisation and its facilities. It
should be noted that the customer’s experience of the organisation as a whole will
probably start before this point, as expectations are shaped by sales and marketing
activities and by word-of-mouth advertising from existing customers.

Aspects of the service experience include:

• the extent of personalisation of the process

• the responsiveness of the service organisation
• the flexibility of customer-facing staff
• customer intimacy
• the ease of access to service personnel or information systems
• the extent to which the customer feels valued by the organisation
• the courtesy and competence of customer-facing staff
• interactions with other customers.

2. The service outcome We use the term service outcome to describe the result for
the customer of service delivery. The key and most obvious output is the ‘expected’
and often tangible output of the service. Examples of this might be the ability of a
recipient of a software training course to construct a spreadsheet, or for a patient in
a hospital to enjoy full mobility after a hip operation. There are also some less tangible
outcomes, such as value, emotions, judgements and intentions.

Value is the customer’s assessment of the benefits of the service weighed

against all the costs involved. The benefits will include the experience (the
pleasantness of the experience and also psychological factors such as a feeling of well-
being or being recognised, in a restaurant for example) and the outcomes (such as the
quality and quantity of food, feelings of satisfaction and happiness, pleasure resulting
from a social occasion) weighed against not only the financial cost that was paid
directly or sometimes indirectly by the customer but also the time and effort that was
involved for the customer in acquiring and receiving the service. Emotions are strong
mental or instinctive feelings, such as pleasure or frustration, delight or disgust. These
 21

may be concerned with the tangible output and/or the way the customer was treated
(the experience). For example, a patient may feel annoyed and upset that a hospital
operation was not a success, or even if the operation was a success the patient may
feel displeasure about the way they were treated by the staff. Judgements are
opinions that form as a result of customers’ feelings about their experience and output
(including perceived value). These judgements will include views about fairness (or
equity), satisfaction or loyalty.

Those judgements, good, bad or indifferent, will result in intentions, such as the
intention to repurchase or not, the intention to tell friends and relatives how bad the
service was or the intention to complain or not. These intentions may or may not
result in action.

Service marketing environment

1. Internal Environment: It relates to those factors which are internal to the business and
are controllable. The internal environment exercises a significant influence on the attitudes,
behaviour and performance of people. Internal environment is influenced by the following
factors:

• Goals and objectives of the organisation: The goals and the objectives set up the
parameters within which the organisation decisions can be taken. They greatly influence
an ability of an organisation to deal with its external environment. Financial and non-
financial targets are determined by the goals.
• Corporate image: Every organisation enjoys an image among the employees. Some refer
to their employers as progressive whereas others refer to them as Conservative. To make
the business acceptable to the society, every business must try to improve its image.
Objectives based on enlightened lines certainly help to improve corporate image.
• Efficient manpower: A successful business is known by its efficient manpower and not by
the buildings and machines. Manpower makes or breaks a business. Due care should be
taken to recruit result-oriented employees.
• Business policies: The knowledge of internal environment and how it affects the
functioning of the organisation is important to understand the use of business policies.
Broadly, policies cover four functional areas viz. production, marketing, finance and HRD.
Business policies provide the broad guidelines within which an organisation has to work.
Thus, policies should be comprehensive.
 22

2. External Environment: External environment relates to the factors which are

external to the business organisation. It is divided into Micro Environment and Macro
Environment.

A) Micro Environment: the micro environment consists of all the factors in the company’s
immediate environment that affects the performance of the Company. These include the
suppliers, marketing intermediaries, competitors, customers and the publics. The micro-
environmental factors are more – intimately linked with the company than the macro factors.
The micro- forces need not necessarily affect all the forms in a particular industry in the same
way. Some of the micro factors may be particular to a firm. When competing firms in an
industry have the same micro elements, the relative success of the firm depends inter alia, on
their relative effectiveness in dealing with these elements. The following factors affect the
micro environment:
• Corporate Resources: Corporate resources include employees, funds, materials,
machinery and management. These resources are controllable. They can be used as
per the guidelines provided by the business policies.
• Customers: The business exists only because of its customers. Monitoring the
customers’ sensitivity is therefore a prerequisite for the success of a business- It is
important to consider the customers’ likes, dislikes, needs, preferences, buying
motives and expectations. A company may have different categories of customers like
individuals, households, industries and other commercial establishments and
government and other institutions. Higher customer patronage brings increased profit
to the business.
• Suppliers: Supplier is an important force in the micro environment of the firm.
Supplier, are those people who supply inputs like raw materials and components to
the firm. The importance of reliable source of supply to the smooth functioning of the
business cannot be overlooked. Uncertainty regarding the supply or the other supply
constraints often compel companies to maintain high inventories leading to increased
cost. It is always advisable to, negotiate with several suppliers and not allow a single
supplier to enjoy monopoly power. The selection of suppliers is within the control of
the management.
• Marketing intermediaries; The marketing intermediaries, include middlemen such
as agents and merchants who help the company find – customer or close sales with
them. Marketing intermediaries are a vital link between the company the final
consumers. A wrong choice of the link, may cost the company heavily. Goods requiring
demonstrations find the services of middlemen unavoidable.
• Society: Business has to serve the society. Society consists of general public, media,
government, financial institutions and organize group like trade unions, shareholders’
associations etc. Society, directly influences the decisions of business.
B) Macro Environment: The survival and success of each and every business enterprise
depend fully on its economic environment. The main factors that affect the economic
environment are:
• Economic Conditions: The economic conditions of a nation refer to a set of
economic factors that have great influence on business organisations and their
operations. These include gross domestic product, per capita income, markets for
goods and services, availability of capital, foreign exchange reserve, growth of
 23

foreign trade, strength of capital market etc. All these help in improving the pace
of economic growth.
• Economic Policies: All business activities and operations are directly influenced by
the economic policies framed by the government from time to time. Some of the
important economic policies are:
I. Industrial policy
II. Fiscal policy
III. Monetary policy
IV. Foreign investment policy
V. Export –Import policy (Exim policy)
The government keeps on changing these policies from time to time in
view of the developments taking place in the economic scenario,
political expediency and the changing requirement. Every business firm
has to function strictly within the policy framework and respond to the
changes therein.
• Social and culture Environment: It refers to people’s attitude to work and wealth;
role of family, marriage, religion and education; ethical issues and social
responsiveness of business. The social environment of business includes social factors
like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The
social structure and the values that a society cherishes have a considerable influence
on the functioning of business firms. For example, during festive seasons there is an
increase in the demand for new clothes, sweets, fruits, flower, etc. Due to increase in
literacy rate the consumers are becoming more conscious of the quality of the
products. Due to change in family composition, more nuclear families with single child
concepts have come up. This increases the demand for the different types of
household goods. It may be noted that the consumption patterns, the dressing and
living styles of people belonging to different social structures and culture vary
significantly.
• Political Environment: This includes the political system, the government policies
and attitude towards the business community and the unionism. All these aspects
have a bearing on the strategies adopted by the business firms. The stability of the
government also influences business and related activities to a great extent. It sends
a signal of strength, confidence to various interest groups and investors. Further,
ideology of the political party also influences the business organisation and its
operations. You may be aware that Coca-Cola, a cold drink widely used even now, had
to wind up operations in India in late seventies. Again, the trade union activities also
influence the operation of business enterprises. Most of the labour unions in India are
affiliated to various political parties. Strikes, lockouts and labour disputes etc. also
adversely affect the business operations. However, with the competitive business
environment, trade unions are now showing great maturity and started contributing
positively to the success of the business organisation and its operations through
workers participation in management.
• Legal Environment: This refers to set of laws, regulations, which influence the
business organisations and their operations. Every business organisation has to obey,
and work within, the framework of the law. The important legislations that concern
the business enterprises include:
 24

I. Companies Act
II. Foreign Exchange Management Act
III. The Factories Act
IV. Industrial Disputes Act
V. Consumer Protection Act
VI. Environment Protection Act

Source Of Service Growth

Service sector growth is fuelled by advances in information technology, innovation, and
changing demographics that create new demands. Information technology has a substantial
impact on the growth of digital services.

• Information Technology The drive to miniaturize information technology equipment

removes the need for physical proximity for service delivery and permits alternative
delivery formats. Banking, for example, has become an electronic service with online
access to personal accounts for transfer of funds or payment of bills. In health care, X-
rays are digitized and transmitted off-shore for interpretation by a radiologist.
Information technology has thus impacted the process of service delivery and created
new service value chains with new business opportunities as creative intermediaries.
• Innovation The product development model that is driven by technology and
engineering could be called a push theory of innovation. Service innovation also can
arise from exploiting information available from other activities. For example, records
of sales by auto parts stores can be used to identify frequent failure areas in particular
models of cars. This information has value both for the manufacturer, who can
accomplish engineering changes, and for the retailer, who can diagnose customer
problems. In addition, the creative use of information can be a source of new services,
or it can add value to existing services. For example, an annual summary statement of
transactions furnished by one’s financial institution has added value at income tax
time. Service innovators face a difficult problem in testing their service ideas. The
process of product development includes building a laboratory prototype for testing
before full-scale production is initiated. One example of an effort in this direction is
provided by Burger King, which acquired a warehouse in Miami to enclose a replica of
its standard outlet. This mock restaurant was used to simulate changes in layout that
would be required for the introduction of new features such as drive-through window
service and a breakfast menu.
• Changing Demographics, The French Revolution provides an interesting historical
example of how a social change resulted in a new service industry. Before the
revolution, only two restaurants were in existence in Paris; shortly afterwards, there
were more than 500. The deposed nobility had been forced to give up their private
 25

chefs, who found that opening their own restaurants was a logical solution to their
unemployment.

Challenges Confronted by Service Sectors.

Managing service operations is something we all do: either unpaid, such as running homes
and families, arranging holidays for friends and family, working for faith organisations and
charities; or paid, such as managing childcare facilities, working in hospitals, hotels, banks,
schools or design companies, for example. While each operation has its own particular
demands, there are a number of key challenges faced by most if not all service operations
and service operations managers:

• managing multiple customers

• understanding the service concept
• managing the outcome and experience
• managing the customer
• knowing, implementing and influencing strategy
• continually improving the operation
• encouraging innovation
• managing short-term and long-term issues simultaneously.

I. Managing multiple customers: Many service organisations do not serve a

homogeneous group of customers; they often serve, in different ways, different types
of customers. The nursery’s customers include both the child for whom it is providing
an education and social experience, and also the parents for whom it is providing a
‘parental substitute’ service. There are other customers, sometimes termed
stakeholders, such as education authorities and health and safety officials, for whom
the nursery provides information and related services, as well as internal customers –
the staff – whose welfare and training needs, for example, need to be considered.
Understanding who are the various customers, understanding their needs and
expectations, developing relationships with them and managing the various
customers) are key tasks for service operations managers.
II. Understanding the service concept: There may be differing views about what
an organisation is ‘selling’ and/or the customer is ‘buying’. Some parents may see the
nursery as simply a babysitting service; others may see it as a critical educational
experience for their offspring. Articulating and communicating the service concept is
critical for clarifying the organisation’s product to all its customers, and for ensuring
that it can be delivered and that it is delivered to specification.
III. Managing the outcome and the experience: One of the challenges for the
service operations manager is that, for many services, there is no clear boundary
between experience and the outcome. Customers in a restaurant are buying both the
meal and the way that they are served. The intangible nature of the experience
provides particular problems for both specification and indeed control. Some service
organisations try to manage the intangible parts of the service by attempting to make
them more tangible. At the nursery the intangible experience for the child has now
been captured as a television product, visible and available to the parents.
 26

IV. Managing the customer: Many service managers face a challenge not shared by
their manufacturing counterparts, which is the presence of the customer inside the
operation, often as an essential part of the service production process. In restaurant
customers are not just walking away with a meal inside them (the tangible output);
they have also received a service in which they too have played a part. Their mood,
attitude and actions may well have an impact not only upon their own experience but
also upon that of other diners and the general atmosphere of the restaurant. This
means that service operations managers, unlike many of their manufacturing counter-
parts, have also to manage, so far as this is possible, the customer during the service
process.
V. Knowing, implementing and influencing strategy: Operations, besides being
the ‘doing’ part of the business, are also responsible for the implementation of
strategy. It is therefore critical for service operations managers to understand their
role not only in implementing strategy but also in contributing to it. Service opera-
tions managers can have a significant effect in developing and sustaining a strategy by
knowing what they can, or could, deliver and by driving change through the
organisation. The other strategic challenge for service operations managers is to
provide the platform for competitive advantage. Rather than creating a service
proposition and matching the operation to this, it may be that there is a competence
in operations that can be turned to strategic advantage.
VI. Continually improving the operation: A challenge faced by all service
operations managers is how continually to improve and develop their processes and
products, ensure that the outcomes are real improvements and that there is a culture
that is supportive of service and change. An important management challenge in this
area is in managing the increased complexity resulting from change. In many cases
this includes improving efficiency as well as quality.
VII. Encouraging innovation: Improving the operation is about taking what exists and
developing it. Innovation, on the other hand, looks for what is not there, i.e., what is
new. Innovation therefore usually requires an element of risk; financial risk because
innovations require time and money, and often personal risk as the ‘champion’ for
change puts their reputation on the line. Introducing the web cam to the nursery was
an innovation that required some expense and no doubt attracted some detractors.
Whether it is a success only time will tell. A critical role for service operations
managers is to be alert to, and seek out, new ideas but also to have the will, and
support, to assess them carefully and follow through if appropriate.
VIII. Managing short-term and long-term issues simultaneously: A significant
component of the excitement of operations management is its immediacy. By this we
mean the constant challenge of dealing with the needs of a stream of customers, and
making operational decisions to ensure the delivery of an appropriate quality of
service at an appropriate cost. The danger of this immediacy is that it can lead to a
short-term focus.
 27

Service Product
Service product is nothing but the services that an organization offers to its
clients or customers. This could be attached to some tangible goods or the
service alone. Some organization’s core operations are completely service
based whereas some attach various services with their tangible products to
make it more valuable and attractive.

New Service Development Process

Stage 1- Business Strategy Review At this stage we must review and

understand the vision, mission, values and strategic orientation of our company. The
vision of transporting goods, i.e., cargo service would be different from the vision of
transporting mail, i.e., courier service. In 1997, Michael Treacy and Fred Wiersema have
written about three value disciplines that companies must choose from.

These includes:

• The operationally excellent firm, which is efficient and delivers services at the lowest
cost to the customer,
• The product/ service leader, i.e., offering innovative services under a strong band,
• The customer intimate firm, that excels in customer attention and customer service.

Next, we must understand the strategic orientation that our company has decided to
take to excel in the marketplace. A strategy is essentially a means to reaching business
goals that our company has decided for itself. Generic strategies are game plans for
operating and surviving in the marketplace.

Stage 2 – Developing new service strategy we must decide the strategy that our
company would like to take to grow in the market place and align new service development
in that direction. These includes

• Intensive growth
• Integrative growth
• Diversification

For intensive growth, the company would strive to increase market share for its current
services in the current market or develop and launch new services in existing markets or take
current services to new mark. These strategies are depicted in the matrix. A company can
increase its market share by changing the style of operations and enhancing its customer
intimacy, for instance. Ordinarily, service businesses choose to grow by taking their current
services to new markets, i.e., new countries and cities and adapt the offering to the
 28

preferences of the customers in the new market. You may have noticed how McDonald's
opened its outlets in various cities in India, one after another. On the other hand, post offices
in India started providing fixed deposit services and passport related services in the same
markets where they were offering postal services. Similarly, a customs agent may launch
courier services in the city. where they are located, as an example of growing their business
by offering new services in existing markets.

Stage 3 -Idea Generation The third stage of new service development is that of
idea generation. This stage requires a formal department to be set up in our company. The
activities in this stage would include conducting idea generation exercises like brainstorming
and focus group discussion with customers, observing customers in different situations
wherein they receive the same benefit through similar or alternative services and learning
about the services provided by competitors. The company must also place suggestion boxes
and institute suggestion reward schemes to attract suggestions from their employees.
Listening to customers is the best way to receive ideas, not only for improvements in the
current services offering, but also for entirely new services. The idea must align with the new
service strategy; otherwise, the idea must be dropped or shelved, it must also undergo
preliminary evaluation regarding the potential market for the benefit that customers are
willing to receive from the service. We must keep in mind that the quantum of investments
starts increasing rapidly from this point onwards for developing each idea. Unless the idea
has clear potential, it must be dropped, otherwise the company will face further losses if the
idea is allowed to be developed further and is dropped at a later stage due to lack of
feasibility.

Stage 4 -Service concept development An idea that appears feasible and

profitable is taken up for development of the service concept. The service concept is the
description of the service in terms of the value it will provide customers, the form and
function of the service, the type and level of experience that customers are likely to receive
from the service, and the outcome of the service. The concept is developed by involving
customers, service personnel, service managers, suppliers and other professionals such that
it is acceptable to all and everybody agree that it is likely to provide much needed benefits to
the customers. The service concept is tested with customers and employees and is dropped
if it is not found to offer substantial benefits to customers in comparison to existing alternate
methods by which customers can satisfy their need.

Stage 5 -Developing the business case It is ensured that it will be possible

to deliver the services in a manner acceptable to customers, the customers are willing to
purchase the service, and the service remains profitable with a three-year ROI/ROCE that is
greater than the prevailing bank interest rate. If the service does not seem to be profitable, it
must be dropped without incurring any further cost in developing the concept further. The
profitable business case is then developed for approval of the management and
representatives of the shareholders and investors.
 29

Stage 6- Service Development And Testing Once the business case for the
service has been approved, it is taken up for development of the actual service. The blueprint
of the services is further developed and the service prototype is tested with actual customers.
For example, a bank can test new ideas by reorganizing current branches for the test period
and observing and collecting data from actual customers about the benefits of the new idea.
One bank found that installing TVs with CNN channel reduced the perceived waiting time for
the customers and then the same was taken up for implementation in big branches. In this
way all new concepts are tested 1 those ideas that do not provide substantial benefits to
customers are Promptly dropped.

Stage 7- Market testing Once the service prototypes have been tested, these are put
together for a pilot test. Alternative marketing mix elements or 7Ps options are tested at this
stage. At first, the pilot service is offered to the employees of the organisation and their
feedback is collected. The service is then modified according to the feedback received and is
offered to actual customers for a short period and their feedback collected. The feedback is
analysed for effecting further modifications in the service and tying up any loose ends. If the
service passes the market testing phase and it is found that customers are enthusiastic about
the new service and the service is estimated to generate profits, the service development is
taken to the next stage.

Stage 8- Commercialization The plan for rolling out the new service is then drawn
up. It is usually rolled out in a phased manner by opening it up in the least risky markets and
then quickly spreading it to other markets if the feedback is favourable. Commercialisation
has two important objectives. The first objective is to elicit the support of the large number
of service personnel who are going to deliver the services. At this stage the new service is
marketed to the employees of the organisation as a new smart offering that generates profits
and bonuses for the organisation. The second objective is to monitor the service throughout
the period that customers purchase and use the service. Every interaction at the moment of
truth and every detail is monitored and feedback collected from the customers as to whether
the latter's needs are being fulfilled, whether they are deriving benefits from the service and
are satisfied and what modifications they would like to be made in the service. The service is
constantly modified based on the feedback collected. Customers' comfort with the price and
other marketing mix elements is thoroughly ensured by the service manager and adjustment
and improvements are continuously made so that customers feel a compelling need to
purchase the service.

Stage 9-Post-launch evaluation: The service is reviewed for performance according

to a pre-planned period of review. Customers, employees, the market and the context keep
changing with time. It is important to effect necessary changes periodically in the service in
line with the changes in the above dimensions. The service blueprint comes in handy at this
stage. It is also inspected for alternate ways to gain further efficiency and pass on part of the
benefits so accrued to the customers and part of the same to the organisation. Customers
and employees are requested for new ideas for this new service and same are incorporated
 30

to: be able to provide the latest to the customers and to remain ahead of competitors in the
marketplace.

Product/service Life Cycle

Like a human being, a product or service has also a certain length of life. Again, like a human
being, a product/service has also to pass through certain identifiable stages in its life. As the
life of a human being can be divided into six stages — Infant, Childhood, Youth, Adult, Old and
Death, in the same manner life of a product/service can also be divided into six parts — (1)
Introduction, (2) Growth, (3) Maturity, (4) Saturation, (5) Decline, and (6) Obsolescence. These
six stages are collectively known as the Life-cycle of a product.

The concept of product life cycle indicates that sooner or later all products/service die and
that if management wishes to sustain its revenues, it must replace the declining
products/services with the new ones. The product/service life cycle concept also indicates
what can be expected in the market for a new product/service at various stages. Thus, the
concept of product/service life cycle can be used as a forecasting tool.

i. Introduction Stage: At this stage the product/service is launched into the market, hence
awareness and acceptances are minimal. So here the emphasis should be on promotional
activities so as to acquaint customers with the product/service and gain acceptance.

In the initial stage with distinctive speciality a firm can charge a high price but as this
characteristic fades away and the product/service becomes a pedestrian one, it has to either
soften the pricing or bring a change in the product/service to create some fresh interest so as
to compete well with the new products/services that have entered the market.

Advertising and sales promotions are extensively used in order to build awareness,
encourage evaluation and trial and initial adoption.

ii. Growth Stage:

During this stage mass market acceptance will take place through early adopters. Growth will
be rapid; profits will emerge and all initial costs covered during this period. This stage is
marketed by increase in the number of competitors, major product improvements, etc.
Intensifying competition might lead to price reductions.
An expansion of the distribution network will be sought in order to facilitate market
penetration in view of increasing pressure from competitors.

iii. Maturity Stage:

When the product/service reaches maturity, sales growth continues but at a diminishing rate
due to declining number of potential customers. This stage represents the most competitive
 31

stage in the life of a product/service but one in which profits are flowing in steadily. Special
promotional efforts are needed to attract new users to the product/service.
During this stage emphasis is given in opening new distribution channels and retail outlets.
iv. Saturation Stage:
There are now many competitors in the market, profits per unit have further declined and
there is no growth in sales.
It is time to consider new markets, changes in prices, promotion and introduction of new
product/service versions or new products/services.
v. Decline Stage: The product/service reaches a stage of declining sales as it faces
competition from better products/services or better substitutes developed by the
competitors. At this stage the product/service has to be redesigned or the cost of production
reduces so that they can continue to make some contribution to the company.
The manufacturer may have to accept the gradual decline and ultimate withdrawal of the
product/service from the market or may try to revitalize it by introducing new product/service
applications, new packaging, a different advertising theme, new selling methods, new
distribution channels or new markets.

Strategies During Different Life Style Strategies

1. Strategies during Product/service Development Stage:
a. Focus is on product/service
b. Emphasis is on cost reduction
c. Trials are the main tools
d. Exploring of the market starts
e. Publicity of the product/service (about its coming)
f. Minimum expenses to be maintained during this period
g. Production capacity must be looked after
h. Quality must be checked
i. Focus on work is to be given
j. A good introducer of the product/service is required
k. In-house working should be emphasised.

2. Strategies during Introduction Stage:

i. Persuade people to try the products/service.
ii. Stress should be on advertising to inform the customer about the product/service
iii. Give introductory offers by providing some attractive gifts to entice the customers.
iv. Give a valid reason to the customers to buy the product/service
v. Dealers should be given good discounts
vi. There should be selective distribution to focus on target customers
 32

vii. Skimming pricing should be followed to earn higher profits in the initial stages
viii. Removing the product/service deficiencies must be focused on

3. Strategies during Growth Stage:

a. Aggressive advertising is required to stimulate the sales of the product/service
b. Availability of the product/service should be ensured to a large number of customers
c. Modifications or new versions of the product/service are required to be introduced to fulfil
the requirement of different customer classes. Strengthening of the distribution channels are
required so that the product/service is easily available wherever required.
d. Focus should be on developing the brand image through promotional activities
e. Competitive prices must be maintained to grab the market.
f. Activities should be customer oriented; an emphasis should be given on customer services
to satisfy them to a maximum level.

4. Strategies during Maturity Stage:

i. More and more emphasis are required on the brand image in order to differentiate the
product/service from products/services of the competitors.
ii. More benefits may be provided to the customers e.g., extending the warranty period,
guarantee period etc.
iii. Change in packaging may be introduced (Reusable packaging).
iv. Packaging may be used as a silent salesman by making it more attractive.
v. Requirement to explore the new markets for the product/service.
vi. New uses of the product/service may be developed.
vii. New users of the product/service may be developed.
viii. New Technology can be adopted to enhance the quality of the product/service.
ix. New features can be added to enhance the value of the product/service.

5. Strategies during Decline Stage:

i. More emphasis on the promotional schemes
ii. Distribution cost should be reduced and the benefit should be transferred to the customers
iii. More value addition to the product/service can be done.
iv. Packaging will play a very important role at this stage also, so it should be focused on.
v. Cost of production should also be reduced.
vi. Economy packs of the products/services should be introduced.
vii. Try to increase the life of the stage
viii. Emphasis is on sales volume with minimum profit margins.
If after all these efforts company fails to restore its position in the market, then the best thing
for the company is to take out their existing product/service from the market and come up
with a new product/service comprising of unique features that can hit the market.
 33

Branding Of Service Products

In the management context, branding is a symbolic representation of information associated
with a product or service. A brand particularly consists of a name, logo, other visible features,
including colour combinations, fonts, images, symbols, etc.

A brand raises a number of expectations in the minds of the individuals in relation to particular
goods or services. These individuals may be employees working with the brand, suppliers,
vendors, and their associates, distributors, and lastly, consumers.

According to American Marketing Association, “Brand is a name, term, sign, symbol, or

design, or a combination of them which is intended to identify the goods or services of one
seller or a group of sellers and to differentiate them from those of competitors.”

The branding process consists of an advertising campaign based on a consistent concept

which forms a distinct identity and image of the product (goods or services) in the minds of
the customers.

Methods Of Service Branding

1) Brand Extension: Introduction of a new or modified service can be facilitated by an already
existing brand. This is also true for corporate branding.
For example, HDFC employs this method. We can use its brand extensions by the name of
HDFC Securities, HDFC Mutual Funds, HDFC Bank, HDFC Chubb General Insurance Company,
and so on.
2) Multi branding: Introduction of several brands in the market enables the service provider
to capture a larger market share in case the market is fragmented. The inability to adopt this
method results in competitors capturing the market.
For example, a number of star hotel chains have been opened by popular hotels such as Taj
and Oberoi for the emerging middle-class of the society. Similarly, on an international level,
Ramada hotels opened Roadway, and Marriott launched Fairfield Inns, which is a chain of
budget hotels. Multi branding is employed in retailing also.

3) Cannibalisation: Cannibalisation occurs when one brand captures the existing or the
potential market share of another brand, and both the brands belong to the same service
provider. Multi branding is the reason behind cannibalization.
For example, cannibalization took place when Diners Club was acquired by Citibank, which
used to have its own debit and credit cards. Similarly, cannibalization effects would be visible
if Pantaloons introduced Big Bazaar in the same mall or supermarket where Pantaloons
already has its outlet.
 34

4) Co-branding: Co-branding refers to the process of bringing in different brands together in

the form of a package.

For example, consumer finance companies are co-branding with car dealers, credit card
companies are joining hands with international -franchisers such as Master Card or Visa.
Service providers can target untapped market segments with the help of co-branding.

5) Private and Generic Brands: Private label brands are those which are launched by specific
retailers and franchisees as their own brands. The retailers and franchisees are able to
distinguish themselves with the help of private label brands, which also inhibits making
comparisons among brands.
For example, Westside, a retail chain of the Tata group, operates only through retail store
brands. On an international level, the retailer Gap used to deal with only Levi’s denim. Later
on, it introduced its own brand by the name of Gap.
On the other hand, generic brands in services were present in the assembling of ACs and
computers, repairing of home appliances, single tutoring classes or counselling, and so on.

Tips For Branding Service Product

1. Be Proactive
In a changing business environment, it is vital to always think ahead.
Before customers ask for next steps or questions, it is important for your business to deliver
the most transparent customer service by being proactive and responsive.
2. Clarify your Services & message
What does your business do? This should be the easiest question to answer.
A clear message to your customers will help your business grow faster and be more
impactful with employees, customers and stakeholders.
3. Anticipate Needs
To own a successful business, your team should know what your customer or client wants. It
is important to anticipate their needs or requests.
4. Be Creative
Some of the best examples of service branding involve creativity. Along with being
transparent and approachable, a creative spin can attract a lot of attention from prospective
customers.
5. Delight Your Customers
Branding tells customers not only who a company is, but it’s also a promise. For companies
looking to stand out from the crowd, it is key to develop a well-defined service branding
strategy.

Emerging Service Sector in Nepal

Most popular service sectors of Nepal are education, healthcare, finance, travel and
tourism, communication, foreign employment, hydro power (potentially). Additional other
services are transportation, trading (wholesaling, retailing), construction, consultancy, social
services, entertainment, professional services, informal services etc. Service sector
contributes 52.58 % to Nepalese GDP. (NRB 2021/2022.)
Major Service sector industries in Nepal are tourism, transport, construction, trade,
community and social services, financial, consultancy services. IT and communication, formal
real estate, tourism sector, digital wallets also are emerging service sectors.
 35

1. ICT (Information and Communication Technology)

According to Economic Survey 18-19, Internet penetration in Nepal stood at 58.59%. By
January 2020, there were 10 million social media users. There are more than 50,000
registered websites in Nepal, including 40,000 commercial websites. Nepal’s IT space has
about 500 companies, with most of them focused on IT-enabled services (ITES) and business
process outsourcing (BPO). There are strong linkages between ICT and GDP growth. Proper
implementation of ICT would propel socio-economic growth in Nepal by addressing crucial
challenges while unlocking the growth potential in various social and economic sectors like
agriculture, education, tourism, urban infrastructure, health, energy, finance, and disaster
management. Several policies and regulatory frameworks governing the ICT sector have
already started providing necessary foundation for the technology-friendly Nepal.
2. Formal Real estate: There are no proper regulations in Nepal for calculating the price of
real estate. To date, we trade real estate based on speculation. For calculating the worth of
the real estate like land: geographical location, access to basic life facilities (i.e., water,
electricity, fibre to home internet, nearby healthcare, educational institutions, airports,
roads), supply and demand of land in the particular area play a role. As a real estate business,
there are many niches to work on. One can be to buy land/houses and later sell or lease them.
The other niche is to become a real estate broker — where the job is to find buyers and sellers
of real estate in return for a brokerage commission. The business can be involved in all these
niches, when necessary, but the greater possibilities can open up if you keep your focus on
only one of them and be an absolute expert in it. There are a lot of informal brokers in the
market but a formal one with a systematic office is rare. It is risky to deal with those informal
ones, but formal brokers who are registered legally give a sense of security.
3. Tourism sector: Nepal has huge possibilities in the tourism sector. The Himalaya nation is
famous for its natural beauty: the world’s highest peaks, national parks rich in flora and fauna,
snow-fed rivers, exceptional trekking routes, wonderful lakes and welcoming people. Nepal
is rich in its cultural and religious diversity as well. Possessing eight of the 10 highest
mountains in the world, Nepal is a tremendously attractive location for mountaineers, rock
climbers and adventure seekers. Apart from being an attractive destination for adventure,
Nepal’s pleasant climate and ever welcoming nature of Nepalese show there is a tremendous
prospect of tourism ahead in Nepal. Tour guides, restaurants, hotels, motels, trekking guides,
information hub, and many more. Not only external even internal tourism has been
flourishing in Nepal due to huge penetration of social media and increase in disposable
income of Nepalese society.
4.E-commerce websites- E-commerce is buying and selling goods via the internet and
transferring money and data to complete the transactions. All stores that sell products online
can be classified as e-commerce. This could be anything from a small online store on Etsy to
big brand sites like Amazon and everything in between.
Technology is changing how we do business at a phenomenal pace, and e-commerce trends
continue to grow and evolve. As we know during the pandemic, while-commerce companies
boomed. Example Daraz is the leading e-commerce marketplace across South Asia (excluding
India). Our business covers four key areas – e-commerce, logistics, payment infrastructure
and financial services – providing our sellers and customers with an end-to-end commerce
solution. It does not produce any goods by itself, just provides a platform where buyers and
sellers can meet and have a trade.
5. Digital wallet: Often termed as e-wallet or mobile wallet, digital wallet is a platform that
allows users to store money, make payments, carry out financial transactions in a manner
 36

that is easy and convenient. It is basically a prepaid account in which the users have to load
money before carrying out any kind of transaction. As the digitization started taking over in
the financial sector, the need to carry out transaction in a digital manner rather than the
conventional manner increased significantly. Since digital wallets are easy, convenient, they
are in the trend of replacing the conventional method of payment. Whether it be paying
electricity bills or mobile recharge, you name it and everything is just in your fingertips.
some big players in these sectors are e-sewa, ime-pay, Khalti, connect IPS and many and so
on.
6. Ed tech services: classes ranging from school college academics, Lok sewa-ayog, banking
preparation classes to various skills including stock market training and music are provided
via YouTube or various other online channels like Zoom. Ms teams and so on. Serving a lot of
interested students all over the globe from within Nepal is sprouting like mushrooms.

7. Education Consultancies and man power: Due to rising demand of Nepalese moving
towards abroad for better education as well as job opportunities, education consultancies
helping students to go abroad for studies and man power agencies helping people to go
various countries to upgrade the living standard are growing in exponential manner.
8. sports centre (. Gym & futsal) : due to rise in disposable income of Nepalese people along
with rise in wrong food habits and less labour lifestyle, people tend to go for various fitness
gym canters and futsal to remain fit as well as for entertainment.
37
 38

Chapter 2- service strategy

Concept Of Service Strategy:

Research into strategy development asserts that effective strategies generally are
evolutionary rather than revolutionary.
Service organisations, like all businesses, need to have overarching strategies in place to try
to prevent non-aligned and disjointed activities and decisions. A strategy is usually seen in
market terms as an organisation’s plan to achieve an advantage over its competitors. Some
organisations, however, may not wish to achieve advantage but see their role as maintaining
their position in the marketplace. Others operate in non-competitive situations and wish to
ensure that they are able to adapt to their own changing environments. Service strategy is
therefore defined as the set of plans and policies by which a service organisation aims to meet
its objectives.
However, service strategy should be formed in such a way that it satisfies the customer
expectations or comes closest to it. the success of a company is measured in terms of the
service that they provide which is why it is crucial for organizations to not run the make good
products but also provide an excellent service. Companies which are exclusive in-service
industries like hotel business or hospitality or entertainment should constantly upgrade
themselves and should modify their offerings in order to meet the change in demand from
the customers.

Distinctive Characteristics Of Service Operations

Service operations have several distinctive characteristics that set them apart from
manufacturing operations. These include:
1. Intangibility: Services are often intangible, meaning that they cannot be touched,
held, or seen. This makes it more difficult for customers to evaluate the quality of a
service before they purchase it.
2. Heterogeneity: Services can be highly variable, meaning that the quality of a service
can vary depending on the provider, the location, or the time it is delivered.
3. Simultaneity: Services are often produced and consumed at the same time, meaning
that customers are present during the production process. This can lead to a high
degree of customer involvement and a need for high levels of customer service.
4. Inseparability: Services and the people who provide them are often inseparable,
meaning that the service provider and the service are one and the same. This can make
it difficult for a company to standardize its services and can lead to a high degree of
service personalization.
5. Perishability: Services cannot be stored, meaning that once a service has been
produced, it cannot be saved for later use. This can lead to a need for high levels
of efficiency and coordination in service operations.
6. High labour intensity: Services often require more human involvement than
manufacturing operations, and thus the service operations are more labour-
intensive.
 39

Understanding these characteristics can help service operations managers to

develop strategies and processes that can help them to meet the unique
challenges of delivering a service.

The strategic service vision:

The need of most service organizations to plan as well as direct marketing and operations as
one function has led to the formation in leading companies, so called Strategic Service Vision
(SSV). `A Strategic Vision is the desired future state at which a company hopes to arrive.
Essentially the strategic aim of the corporation. It is the imaginative.

According to research in Harvard Business Review of tens of thousands of working people

around the world, effectively enlisting the hearts and minds of your organization in a shared
vision of the future differentiates leaders from non-leaders. In short, companies without an
effective strategic vision struggle to provide a meaningful context for their mission, goals,
strategies, and implementation plans. picture of the future state of affairs a firm wishes to
achieve.
We define Strategic Vision as “What the organization hopes to become — the business you
will be in tomorrow.” There are a few common paths to creating a strategic vision.
Some executive teams like to start with a clear and compelling Strategic Vision Statement to
inspire and align the troops to a bigger and better future.
Other leaders prefer to start with the company’s Mission Statement to ground the company
with their “organization’s business and fundamental purpose.”
Starting with a Strategic Mission Statement allows the team to create a Strategic Vision
Statement that clearly articulates the organization’s future state if the Mission were fully
accomplished.

Five Attributes of an Effective Strategic Vision Statement

five key components of an effective Strategic Vision statement to consider are:
1. Future Oriented
What will the organization look like, feel like, think and say in the future?
Where is the organization headed? What does your full potential look like?
2. Inspiring and Challenging
What vivid and energizing image do you want to create for people about your
desired outcomes and goals? What is your dream? What mountaintop are you
striving to reach? What catalyst will impel the organization to move toward
that dream?
3. Motivating and Memorable
What notable and emotionally connecting future direction do you want to keep
reaching and pushing toward?
4. Purpose-driven
What is the larger sense of organizational purpose you are striving to obtain?
Are you building a cathedral or are you laying stones?
5. Unique
Can you substitute your strategic vision statement for others inside or outside
 40

your industry? If you cannot, your unique value proposition needs some more
work.

Four Criteria of an Effective Strategic Vision Statement

Once you have crafted a draft Strategic Vision Statement with your key stakeholders, your
next step is to evaluate the statement itself using the following four criteria of an effective
vision statement:
1. Short Enough?
You don’t want a long vision statement, because no one will truly
remember or embrace it.
2. Believable Enough?
People must believe in where you are headed. The long-term vision can’t be
deemed as unattainable or inauthentic.
3. Achievable Enough?
While the vision should be a stretch, it must be perceived to be possible over
time for it to be a viable strategic driver.
4. Relevant Enough?
And lastly, the vision itself has to matter to all key stakeholders for it to take
root.
The Bottom Line
To lead people into a bigger and better future, provide an inspiring, motivating, challenging,
memorable, and unique picture of where the business is headed. The best leaders engage
their employees in the process of creating a shared vision of success. Is your vision believable,
achievable, and relevant enough to engage your organization?

Elements Of Service Design

Service design is the activity of planning and organizing business resources (people,
props, and processes) in order to improve directly, the employees’ experience and
indirectly, the customers’ experience. Service design is a process where designers
create sustainable solutions and optimal experiences for both customers in
unique contexts and any service providers involved.
“When you have two coffee shops right next to each other, and each sells the exact
same coffee at the exact same price, service design is what makes you walk into
one and not the other.”
Service design applies both to not-so-tangible areas (e.g., riders buying a single Uber trip) and
tangible ones (e.g., iPhone owners visiting Apple Store for assistance/repairs). Overall, service
design is a conversation where you should leave your users and customers satisfied at all
touchpoints, delighted to have encountered your brand.

Services are everywhere! When you get a new passport, order a pizza or make a reservation
on AirBnB, you're engaging with services. How those services are designed is crucial to
whether they provide a pleasant experience or an exasperating one. The experience of a
service is essential to its success or failure no matter if your goal is to gain and retain
customers for your app or to design an efficient waiting system for a doctor’s office.

In a service design process, you use an in-depth understanding of the business and its
customers to ensure that all the touchpoints of your service are perfect and, just as
 41

importantly, that your organization can deliver a great service experience every time. It’s not
just about designing the customer interactions; you also need to design the entire ecosystem
surrounding those interactions.
Key elements of service design are as follows:
1. Actors: Actors includes those employees who deliver the services to the clients or
customers. Actors are the ones who have direct link with the customers. The first
impression towards then service is created by the actors. This is very crucial element
of the service because the act, behaviour and attitude of the employees determines
whether the client or customer will be ready to carry out the transaction further. For
example, for restaurant business waiters are then actors.
2. Location: The physical or virtual location where the customers are served by the
actors of the service(employees). Location plays a very important role in convincing
and attracting the clients and making them believe and trust the service organization
and its service products. For example, restaurant and its ambiance acts as location.
3. Props: objects used during service delivery are said to be props. These objects must
be selected carefully and optimally so that there are no any points left for
dissatisfaction. Props add value to the location and serve as essential tools for the
actors of the service. For example, sofa, lightings, AC, etc acts as props for restaurant
business.
4. Associates: other organizations associated with the service business to support its
functions and procedures of doing business and providing adequate services to the
customers are associates. Associates also perform their respective service along with
serving other service business knowingly or unknowingly.
5. Processes: workflows used to deliver the service in any service business are known as
processes. So, in the verse of delivering the service to the clients or customers all the
above listed elements work together to support process of delivering service. So,
process can be defined as the conversion procedure which aims to convert a prospect
into a customer, loyal customer and finally to an advocate.

Classifying Services For Strategic Insights

Classifying services for strategic insights is the process of grouping and categorizing different
services offered by a company based on their similarities and differences, in order to gain a
deeper understanding of the market and the company's position within it. This can help a
company identify opportunities and threats, as well as inform strategic decision-making.

There are several ways to classify services for strategic insights, including:
• Market segmentation: This involves dividing the market into different groups of
customers based on characteristics such as demographics, behaviour, or needs.
• Product-market matrix: This involves plotting products and services on a matrix based
on their relative market growth and market share.
 42

• Value chain analysis: This involves breaking down the different activities involved in
delivering a service and identifying areas where the company can create or capture
value.
• Competitive analysis: This involves analysing the strengths and weaknesses of a
company's competitors in order to identify areas where the company can differentiate
itself.
By classifying services in this way, a company can gain a deeper understanding of its
customers and the market, and use that information to inform strategic decisions such as
product development, pricing, and marketing.

Competitive Service Strategies

Competitive service strategies are the actions and tactics that a company can use to gain a
competitive advantage over its rivals in the service industry. Some examples of competitive
service strategies include:
Differentiation: Offering unique and superior services that are not easily replicated by
competitors, in order to appeal to a specific target market.
Cost leadership: Offering services at a lower cost than competitors, in order to attract price-
sensitive customers.
Innovation: Continuously improving and updating services to meet changing customer needs
and stay ahead of competitors.
Personalization: Tailoring services to meet the specific needs of individual customers, in order
to create a more satisfying and personalized experience.
Branding: Building a strong, recognizable brand that differentiates the company from its
competitors and creates a positive image in customers' minds.
Quality: Delivering high-quality services consistently across all interactions with customers to
create a positive reputation for the company.
Service recovery: Developing processes and protocols for quickly and effectively addressing
customer complaints and service failures to minimize the negative impact on customer
satisfaction and loyalty.
Service guarantees: Offering guarantees or warranties on the services provided, in order to
build trust and confidence with customers.
It's important to note that these strategies are not mutually exclusive, a company may
use multiple strategies to achieve a competitive advantage. The company should also
regularly evaluate and adjust their strategies based on the market trends, competitors and
customer's needs.
 43

Winning Customers In The Market Place

Winning customers in the marketplace is a critical goal for any business. To achieve this,
companies can use a variety of strategies, including:

Marketing: Developing effective marketing campaigns that target specific segments of the
market, and using a variety of channels to reach customers.
Product development: Continuously innovating and improving products or services to meet
changing customer needs and stay ahead of the competition.
Pricing: Setting prices that are competitive with other companies in the industry, while still
allowing for a reasonable profit margin.
Strong Sales team: Training and motivating a sales team to be effective at closing deals and
building relationships with customers.
Customer service: Providing excellent customer service to build trust and loyalty with
customers, and to create positive word-of-mouth marketing.
Branding: Building a strong brand that differentiates the company from its competitors and
creates a positive image in customers' minds.
Networking: Building relationships with other businesses, organizations, and influencers in
the industry to increase visibility and credibility.
Online presence: Developing a strong online presence through a website, social media, and
other digital channels to reach a wider audience.
Use of technology: Leveraging technology to automate processes, improve efficiency, and
enhance the customer experience.
Ultimately, the key to winning customers in the marketplace is to understand their needs and
preferences and to deliver a product or service that exceeds their expectations. By constantly
analysing and improving their strategies, companies can gain a competitive advantage and
win more customers in the marketplace.

Virtual Value Chain

A virtual value chain refers to the process of creating value through digital means, rather than
through traditional physical processes. In a virtual value chain, companies use digital
technologies to design, produce, market, and distribute their products or services.
The virtual value chain is made up of several key components, including:

Virtual design: Using digital tools and technologies to design products and services, such as
computer-aided design (CAD) software.
Virtual manufacturing: Using digital tools and technologies to produce products and services,
such as 3D printing and robotics.
Virtual marketing: Using digital tools and technologies to promote products and services,
such as social media and online advertising.
Virtual distribution: Using digital tools and technologies to distribute products and services,
such as e-commerce platforms and digital marketplaces.
Virtual customer service: Using digital tools and technologies to provide customer service,
such as chatbots and virtual assistants.
 44

By relying on digital technologies, companies operating in a virtual value chain can achieve
greater efficiency, flexibility, and scalability than traditional manufacturing processes. This
can help companies to reduce costs, reach new markets, and respond more quickly to
customer demands.

It's also important to note that virtual value chain can be used in conjunction with the
traditional value chain. Many companies use a combination of both virtual and traditional
processes to create value, depending on the specific needs of their products or services.
 45

Service operation and management

[Chapter-3 Managing Service Operations and Processes]

Managing service demand and supply

What makes service industries so distinct from manufacturing ones is their immediacy: the
hamburgers have to be hot, the motel rooms exactly where the sleepy travellers want them,
and the airline seats empty when the customers want to fly. Balancing the supply and demand
sides of a service industry is not easy, and whether a manager does it well or not will, make
all the difference. Because of the intangible nature of a service’s output, establishing and
measuring capacity levels for a service operation are often highly subjective and qualitative
tasks.
Because of the intangible nature of a service’s output, establishing and measuring capacity
levels for a service operation are often highly subjective and qualitative tasks.
The consumption of goods can be delayed, as a general rule services are produced and
consumed almost simultaneously. Given this distinction, it seems clear that there are
characteristics of a service delivery system that do not apply to a manufacturing one and that
the service manager has to consider a different set of factors from those that would be
considered by his or her counterpart in manufacturing. And if one looks at service industries,
it is quite apparent that successful service executives are managing the capacity of their
operations and that the unsuccessful are not. So, the “odd characteristics” often make all the
difference between prosperity and failure.
Some effective ways to manage demand and supply are:
Demand management
The manager can attempt to affect demand by developing off-peak pricing schemes, nonpeak
promotions, complementary services, and reservation systems.

I. Pricing: One method manager uses to shift demand from peak periods to nonpeak
ones is to employ a differential pricing scheme, which might also increase primary
demand for the nonpeak periods. Examples of such schemes are numerous. They
include matinee prices for movies, happy hours at bars, family nights at the ball park
on week nights, weekend and night rates for long-distance calls, peak-load pricing by
utility companies, and two-for-one coupons at restaurants on Tuesday nights.
II. Developing nonpeak demand: Most service managers wrestle constantly with
ideas to increase volume during periods of low demand, especially in those facilities
with a high-fixed, low-variable cost structure. E.g., Ncell and NTC offering various kinds
of data and voice package during night time to develop during their non peak demand.
Even if the new concept succeeds in creating demand in nonpeak periods, the effects
are not always positive. Managers often use slack time productively as a time to train
new employees, do maintenance on the equipment, clean the premises, prepare for
the next peak, and give the workers some relief from the frantic pace of the peak
periods. A new concept, therefore, may have a tendency to reduce the efficiency of
the present system at best, or, at worst, to destroy the delicate balance found in most
service delivery systems.
 46

III. Developing complementary service: Another method managers use to shift

demand away from peak periods is to develop complementary services, which either
attracts consumers away from bottleneck operations at peak times or provides them
with an alternative service while they are in the queue for the capacity-restricted
operations. For example, restaurant owners have discovered that on busy nights most
patrons complain less when sitting in a lounge with cocktail then when standing in line
as they wait for tables in the dining area. Also, the profitability of restaurants with bars
can more than double.

A diversion can also relieve waiting time. A hotel manager installed mirrors on each
floor’s central lobby so that customers could check their appearance while they waited
for the elevator. Banking by mail or by automated tellers are other ways to cut down
customer waiting time.

IV. Creating reservation systems: Service executives can effectively manage

demand by employing a reservation system, which in essence presells the productive
capacity of the service delivery system. When certain time periods are booked at a
particular service facility, managers can often deflect excess demand to other time
slots at the same facility or to other facilities at the same company and thereby reduce
waiting time substantially and, in some cases, guarantee the customer service.

For instance, if a motel chain has a national reservation system, the clerk can usually
find a customer a room in another motel of the chain in a fairly close proximity to his
or her desired location if the first-choice motel is full. In a similar manner, airlines are
often able to deflect demand from booked flights to those with excess capacity or from
coach demand to first class, especially if their competitors do not have seats available
at the consumers’ desired flight time.

However, reservation systems are not without their problems, the major one being
“no-shows.” Consumers often make reservations they do not use, and, in many cases,
the consumer is not financially responsible for the failure to honour the reservation.

Managing Supply: The service manager has more direct influence on the supply aspects of
capacity planning than he or she does on the demand side. There are several things a service
manager can do to adjust capacity to fluctuating demand.
• Using part-time employees: Many service companies have found that it is more
efficient to handle demand whenever it occurs than it is to attempt to smooth out the
peaks. The peaks vary by type of business—during certain hours of the day
(restaurant), during certain days of the week (hair styling), during certain weeks of the
month (banking), and during certain months of the year (income tax services). These
service businesses usually maintain a base of full-time employees who operate the
facility during non-rush periods but who need help during peak periods. One of the
best-known resources is part-time labour pools, especially high school and college
students, parents who desire work during hours when their children are in school, and
moonlighters who desire to supplement their primary source of income.
• Maximizing efficiency: To maximize efficiency, managers examine even peak-time
tasks to discover if certain skills are lacking or are inefficiently used. If these skills can
 47

be made more productive, the effective capacity of the system can be increased. For
example, paramedics and paralegals have significantly increased the productive time
of doctors and lawyers. Even rearranging the layout of the service delivery system can
have a major impact on the productivity of the providers of the service.
Another way to attack the peak capacity constraint is by cross-training. The service
delivery system is composed of various components. When the system is delivering
one service at full capacity, some sections of the system are likely to be underused. If
the employees in these sections are able to deliver the peak service, they add capacity
at the bottleneck. When the demand shifts and creates a bottleneck in other
components of the system, the employees can shift back again.
• increasing consumer participation: The more the consumer does, the lower the
labour requirements of the producer. Bagging yourself groceries, salad bars at
restaurants, self-service gas pumps, customer-filled-out insurance information forms,
and cook-it-yourself restaurants are all examples of increased consumer participation
in the production of services.There are, of course, some risks to increasing consumer
input: consumers might reject the idea of doing the work and paying for it too; the
manager’s control over delivery of the service is reduced; and such a move can create
competition for the service itself. A cook-it-yourself restaurant customer might just
stay at home.
• Sharing capacity: the delivery of a service often requires the service business to
invest in expensive equipment and labor skills that are necessary to perform the
service but that are not used at full capacity. In such cases, the service manager might
consider sharing capacity with another business to use required, expensive, but
underused resources jointly.
For example, a group of hospitals in a large urban area might agree that it is
unnecessary for each to purchase expensive medical equipment for every ailment and
that they ought to share capacity. One would buy cardiac equipment, another
gynaecological and obstetrical equipment, another kidney machines.
• investing in the expansion ante: Wise service managers often invest in an
“expansion ante.” When growth occurs, it sometimes becomes clear that some of the
new development could have been done when the facility was originally constructed
for much less cost and disruption. A careful analysis before the facility is built will show
what these items are. For instance, for a small investment, a restaurateur can build
his kitchen with extra space in order to service more diners later on.
• Seeking the Best Fit: The challenge to the service manager is to find the best fit
between demand and capacity. In order to manage the shifting balance that
characterizes service industries, managers need to plan rather than react. For
example, managers should try to make forecasts of demand for the time periods under
question. Then he or she should break the service delivery system down into its
component parts, calculate the present capacity of each component, and arrive at a
reasonable estimate of what the use of each component will be, given the demand
forecast. Because each system cannot handle infinite demands, the manager needs to
question how much of the peak demand the system must handle.

Ultimately, of course, on the demand side, a manager’s true aim is to increase revenues
through an existing service delivery system of given capacity. Once the true variable costs are
 48

subtracted out, all revenues flow to the bottom line. On the supply side, the manager aims to
minimize costs needed to increase or decrease capacity.

When facing increased demand, the business raises its revenues with minimal investment.
In times of capital rationing, small investments are often the only ones available to the
company. When facing contracting demand, the manager needs to select the best way to
adjust the system’s capacity to a lower volume.

Customer’ role as in service delivery

Since these customers are present during the service production, customers can contribute
to or detract from the successful delivery of the service and to their own satisfaction.
Customer participation at some level is inevitable in-service delivery. Services are actions or
performances, typically produced and consumed simultaneously. In many situations’
employees, customers and even others in the service environment interact to produce the
ultimate service outcome. As the customers receiving the service participates in the service
delivery process. He or she can contribute to the gap through appropriate or inappropriate,
effective or ineffective, productive or unproductive behaviours.
The level of participation – low, medium, high – varies across different services. In some cases,
all that is required is the customers physical presence (low level of participation), with the
employees of the firm doing all of the service production work, as in case of a Ghazal/ musical
concert. The listeners must be present to receive the entertainment service. In other cases,
consumer inputs are required to aid the service organization in creating the service delivery
(moderate level of participation).
Customer’s roles
1) Customers as a productive process: Service customers are referred to as “partial
employees” of the organization. They are human resources who contribute to the
organization’s productive capacity. In other words, if customers contribute effort,
time or other resources to the service production process, they should be considered
as part of the organization. Customer inputs can affect the organization’s productivity
through both quality and quantity of output. E.g. consulting and counselling firms,
doctor service, phycologist service and so on.
2) Customers as quality contributors to service delivery and satisfaction: Another
role customers play in service delivery is that of the contributor to their own
satisfaction and the ultimate quality of the services they receive. Customers may
care little that they have increased the productivity of the organization through
their participation. But they likely care a great deal about whether their needs are
fulfilled. Effective customer participation can increase the likelihood of service
delivery that their needs are met and that benefits the customer seeks are
attained. Services such as health care, education, personal fitness, and weight loss,
where the service outcome is highly dependent on the customers participation. In
such services unless the customers perform their roles effectively, the desired
service outcomes cannot be achieved.
3) Customers as competitors: A final role played by service customers is that of a
potential competitor. If self-service customers can be viewed as resources of the
firm, or as “partial employees,” self-service customers in some cases. They can
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partially perform the service or the entire service for themselves and may not need
the provider at all.
Customers thus in that sense are competitors of the companies that supply the
service. Whether to produce a service for themselves (internal exchange). E.g. child
care, home maintenance i.e. have someone else provide home services for them
(external exchange) is a common dilemma for consumers.
Similar internal versus external exchange decisions are made by organizations.
Firms frequently choose to outsource service activities such as payroll, data
processing, research, accounting, maintenance, and facilities management. They
find that it is advantageous to focus on their core businesses and leave these
essential support services to others with greater expertise. Alternatively, a firm
may decide to stop purchasing services externally and bring the service production
process in-house.
Types Of Supply Relationships
the process of evaluating suppliers and identifying which relationships are essential to
effectively and efficiently do business is called Supply Relationship Management
(SRM). As with any relationship, both parties strive to build value and profitability. The
relationship you have with your suppliers can have direct benefits on the efficiency
and productivity of your supply chain. After you have begun cultivating a strong
supplier relationship, you need to stay on top of managing the relationship to ensure
it flourishes. Three major types of supply relationships:

A. Simple supply chains,

B. management through intermediaries and
C. supply partnerships

With a successful supplier relationship management strategy, your organization can see
benefits such as:
 50

• Reduced costs Just like with employee turnover, having to replace a supplier can be
costly and time-consuming. When you invest time and resources into maintaining
your existing suppliers, you can save money on sourcing, onboarding, and
negotiations
• Increased efficiency As with every relationship, the more time you invest in it, the
more well-built it will be. By keeping accurate records and managing your relationship
with vendors, you can make sure your relationships remain profitable. Over time you’ll
notice that communications improve, and your goals will align more closely.

A. Simple Supply Chain

A supply chain is the link, or usually the network, that joins together internal and external
suppliers with internal and external consumers. Supply chain management (SCM) is
concerned with managing the network and the flow of information, materials, services and
customers through the network.
The essential exchange mechanism is information. More accurate information about
expected demand passed in appropriate format to upstream suppliers allows them to manage
their production with minimum cost.
The benefits of increased competitiveness will be shared equitably with the ‘partners’ in the
supply chain. service organisations need to manage their supplier base because there are
significant cost savings to be made. For example, airlines will watch the price of fuel carefully
because marginal savings here will impact the profit line directly. On a smaller scale, a local
seafood restaurant will want to develop reliable sources of supply of fresh fish to serve to its
customers.
Managing the supply chain or network is vital for ‘pure’ service providers who create their
services by packaging together a set of other services. The holiday industry is a good example
(see Figure 5.3). Travel agents traditionally sell holidays to customers through shops in town
centres or shopping malls. The customers may be individuals or group travellers. The travel
agents sell a range of ‘products’, or packages, created by a number of tour operators. These
tour operators will each negotiate independently with a range of hotels, airlines, restaurants,
entertainment activities and venues, and transportation companies, for example, to create a
pack- age holiday aimed at a particular market. The value of SCM is that it allows for the
benefits of vertical integration without the long-term overhead and inherent inflexibility that
comes from trying to manage all activities in a supply chain under the umbrella of one
organisation. This allows organisations to continue to ‘do what they are good at’ and to form
supply relation-ships that have sufficient duration to allow for the development of
understanding of how to do things better. It is always recognised, though, that as the market
demands change, some of these relationships cease to be effective.
Companies in the financial services sector have also become interested in the concept of
supply chain management, but frequently what is meant in this context is a desire to gain
control of the channels to market.
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Supply Chain Management Approaches

The basis of SCM lies in the development of strong buyer–supplier partnerships. Figure 5.4,
from the work of Helper (1991), is a useful starting point to understand the approach. Helper’s
work was based on research carried out with suppliers to the large automobile manufacturers
in the USA. It is interesting because it views the partnerships from the standpoint of the
relatively weak suppliers as opposed to that of the buyers, who tend to claim benefits not
shared by weaker partners.
Helper categorised the relationships as follows:
• Voice: This equates to partnership sourcing. The partners share information on long-
term activity forecasts and in some cases collaborate on research and development
(R&D). There is extremely high trust between the partners and have committed to
support each other in the long run.
• Exit: This is what has come to be termed ‘traditional’ or adversarial purchasing.
Contracts are generally short and there is no sharing of long-term demand forecasts
or assistance with process development. It is likely that contracts are placed almost
exclusively on price, and buyers will continue to search for competitive bids in order
to keep their suppliers in line.

• Unlikely: There is high level of two way communication between the supplier and the
purchaser but there is lack of enough commitment for long term business. Purchaser
may be searching better deals from other suppliers and suppliers may also not wanting
to be dependent on one or two suppliers.
• Stagnant: In this scenario, there is a strong sense of commitment, but this has not
been turned into a relationship that realises its full potential. Both supplier and
purchaser are doing transactions since a long period of time and may continue this in
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the future too. But there is low degree of communication about the services between
the parties.

This, the gist of the above matrix is that, supply relationship is not permanent, it may change
time and again. So, the commitment in the relationship also varies depending upon the need,
time and dependency.

The key elements of supply chain management include:

• The management of the supply chain in its entirety, using measures that assess the
performance of the total chain.
• the development of buyer/supplier partnerships with the expectation of sharing the
benefits of increased co-operation over time
• the reduction of the number of suppliers in the chain, with an increase in single or sole
suppliers, allowing resource to be focused on the strategic issues
• increasing interchange of information, possibly including long-term demand forecasts,
financial costings, process improvements, and research and development
• the possibility of reallocating activities to the most effective position in the supply

Types Of Supply Chain

• Vendor — These relationships are primarily transactional. In this situation, both
parties are represented as a buyer or seller, with little or no collaboration during the
process outside of the transaction.

• Strategic Alliance — Strategic alliances are more entwined. In this relationship, both
organizations collaborate and modify their processes to help achieve their goals. In
this scenario, the relationship is more strategic rather than transactional.

• Partnership — In partnerships, both parties work closely together to customize their

business strategies to produce positive results. These outcomes are generally more
successful than anything either part could achieve individually

B. Managing Through Intermediaries

Many service organisations continue to use intermediaries for the selling process as well as
for service delivery to the end customer or user. These organisations have continued to
develop support networks of agents, dealers or franchisees for a variety of reasons.
Financial service companies have traditionally dealt through pensions or insurance brokers.
This was in part to give the customer confidence that they were being given independent
advice.
The problem with this approach is that it often leads to confusion as to who is the ‘real’
customer – the intermediary or the final consumer. Of course, the simple answer is that
both groups are customers, but it would be wrong to suggest that satisfying both groups is
an easy task.
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Why use intermediaries?

Closeness to customer: Many customers prefer to deal with an organisation that is physically
close to them. This might be because they prefer to deal ‘face to face’, have not got access to
electronic processes, or the nature of the service requires the presence of the service
provider. For example, one of the major drivers for customer satisfaction in the ownership of
cars is the ease of access to a recognised dealer for service and repair.
Local knowledge: The parent organisation may have insufficient knowledge of local
conditions and culture. In the development of global strategies, much emphasis is placed on
‘thinking globally, acting locally’.
Focused expertise: some local intermediaries are expert in their respective market and have
high skills of service delivery. Their expertise may have high chance of generating more sales
in his area of interest.
Poor service margins: The volume of service revenue may be too small in some geographical
regions for the provision of a dedicated service unit. Capital equipment suppliers may sell only
one or two units initially into a region, but must provide aftersales support. Rather than
recruit and train service engineers for a few service calls per year, the company may use local
service agents, who may also service competitors’ equipment.
Insufficient capacity; When the service business has in sufficient capacity to handle all its
departments, they rather outsource these non-core operations to other third-party agencies,
e.g., marketing agencies, logistics companies, call centres and so on.
Managing intermediaries
The central issue in dealing with intermediaries is that their objectives may not always
coincide with those of the parent organisation. The challenge is to provide such
intermediaries with sufficient financial incentive while developing the customer service
values required to generate customer loyalty. Strategies include:
Financial incentives: This is particularly relevant when the intermediary is not dedicated to
provide service for only one organisation. The parent organisation may provide financial
inducements, discounts or credit facilities to encourage the intermediary to favour its service
products ahead of its rivals.
Punishments: The ultimate sanction for poor performance is for the parent organisation to
withdraw its support. System of penalizing the not performing intermediaries and
threatening them to take away the right to sell their goods or services.
Providing expertise. One of the most effective ways of motivating intermediaries is to provide
support for their business. The parent organisation frequently has considerable resources in
areas that are lacking in the intermediary.
Training: Provide frequent trainings and development programmes to make intermediaries
more efficient and productive in their respective field. Creating standard of service in every
outlet as possible through training to all the intermediaries or their staffs.
Information systems and technology: Provision of process technology will assist in ensuring
consistency of delivery. A franchisee generally receives a package of standard equipment and
operating procedures to deliver the core service in the manner laid down by the parent
organisation.
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C. Supply Partnerships
As the pace of competition quickens it has become increasingly common for organisations
to enter into partnerships and alliances for a number of strategic reasons:

• to enter a new geographic region, where a partner may have a stronger market
presence.
• to provide a package of goods and services that require the joint expertise of the
partners to deliver them.
• to develop new expertise in association with others, sharing resources in order to
gain joint benefits.

Types of supply partnership

Joint venture: A joint venture is when two parent companies form a separate entity called a
child company. Unlike in a merger, the two parent companies in a joint venture continue to
operate independently outside of their child company. Each alliance partner owns a portion
of the child company. Depending on the arrangement, this can be a 50:50 partnership or a
majority-owned venture (when one company owns more of the new business than the other).
For example, a restaurant and a stand-up comedy club start a new restaurant with a name
“Have A Laugh.”
Equity strategic alliance: An equity strategic alliance is formed when one company purchases
equity in another. This type of strategic partnership is common when one company could
benefit from the core competencies of the other. For example: A bank may buy equity of a
remittance company to expand its service.
. Non-equity strategic alliance. A non-equity strategic alliance is when two companies
become strategic partners on a contractual basis. The two companies pool resources and
share core competencies on a contractual basis without making a direct financial investment
in each other. Licensing agreements, where one company pays a fee to use another
company’s technology, are a commonly-occurring type of non-equity strategic alliance.

Service Guarantee:
Traditionally, many people believed that services simply could not be guaranteed given their
intangible and variable nature. What would be guaranteed? With a product, the customer is
guaranteed that the product will perform as promised and if doesn’t, that it can be returned.
With services, it is generally not possible to take returns or to “undo” what has been
performed. however, as more and more companies find they can guarantee their services and
that there are tremendous benefits for doing so. Companies are finding that effective service
guarantees can complement the company’s service recovery strategy—serving as one tool to
help accomplish the service recovery strategies. Currently, a lack of consensus about what
exactly constitutes a guarantee is evident. While some researchers view it as a policy, others
suggest it is a firm promise.
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The benefits to the company of an effective service guarantee are

as follows:
Sets Clear Standards for the Organisation – It prompts the company to clearly define what it
expects of its employees and to communicate that to them. The guarantee gives employees
service-oriented goals that can quickly align employee behaviours around customer
strategies.
Forces the Company to Focus on its Customers – To develop a meaningful guarantee, the
company must know what is important to its customers — what they expect and value. In
many cases “satisfaction” is guaranteed, but in order for the guarantee to work effectively,
the company must clearly understand what satisfaction means for its customers (what they
value and expect).
Immediate and Relevant Feedback from Customers – It provides an incentive for customers
to complain and, thereby, provides more representative feedback to the company than
simply relying on the relatively few customers who typically voice their concerns. The
guarantee communicates to customers that they have the right to complain.
Reduces their Sense of Risk and Builds Confidence in the Organisation for Customers –
Because services are intangible and often highly personal or ego involving, customers seek
information and cues that will help reduce their sense of uncertainty.

Types of Service Guarantees:

A Specific Guarantee — Signals firm commitment on specific attribute performance such as
delivery time or price. Specific guarantees allow customers to evaluate service by
disconfirming attribute performance expectations.

An Unconditional Guarantee — Promises performance on all aspects of service, and “in its
pure form, promises complete customer satisfaction, and at a minimum, a full refund or
complete, no cost problem resolution for the payout.”

Implicit Guarantee — As the term suggests, it is an unwritten, unspoken guarantee that

establishes an understanding between the firm and its customers. Customers may infer that
an implicit guarantee is in place when a firm has an outstanding reputation for service quality.

Service Level Agreement (SLA)

A Service Level Agreement (SLA) is a contract between a service provider and a customer that
specifies the agreed-upon levels of service, responsibilities, and expected service results. It
defines the minimum level of service that the service provider is committed to delivering, as
well as the customer's rights and responsibilities. The purpose of an SLA is to set clear
expectations and establish accountability for the delivery of a service.

An SLA typically covers areas such as the types of services to be provided, service availability
and uptime, response times, resolution times, and compensation for service failures. SLAs are
commonly used in the context of IT services, telecommunications, and cloud computing, but
can be applied to any type of service that requires a clear definition of responsibilities and
expectations.
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Having a well-defined SLA in place can help to ensure that the service provider and the
customer have a clear understanding of the service to be provided and can help to minimize
misunderstandings and disputes. It can also help to promote trust and confidence between
the two parties, which can lead to a more productive and long-lasting relationship.

The core of an SLA is the development and agreement of the service specification. This will
include:

• Agreeing the key dimensions of performance, such as response times, availability,

accuracy etc. This allows for both customer and supplier to understand what is
important about the service from both points of view.
• Agreeing how each dimension will be measured. Discussion and agreement about the
measures to be used reduces the likelihood of disagreements at a later date about
performance.
• Setting mutually agreed targets for each dimension. It is possible that standards set
by one party may be too high for the needs of the other; clarity and agreement over
what is needed and what is possible should lead to a feasible and
• achievable – and indeed low-cost – outcome.
• Defining where the responsibility lies for the measurement of each dimension. Unlike
a traditional contract the responsibility for performance measurement may rest with
either the supplier or customer, but such information is made openly available to both
parties.

Service Level Agreements (SLAs) offer a number of benefits to both

the service provider and the customer:
Improved Service Quality: SLAs define the minimum level of service that the service
provider must deliver, helping to ensure that the customer receives consistent, reliable
service.

Increased Accountability: An SLA makes both the service provider and the customer
accountable for meeting the agreed-upon service levels, which helps to minimize
misunderstandings and disputes.

Better Communication: SLAs help to establish clear lines of communication between the
service provider and the customer, promoting a more productive relationship.

Increased Customer Satisfaction: By providing a clear understanding of the service to be

provided, SLAs can help to increase customer satisfaction, as customers have a clear
understanding of what they can expect from the service provider.

Improved Performance Management: SLAs provide a framework for measuring and

tracking the performance of the service provider, helping to identify areas for
improvement and driving continuous improvement.

Some of the key roles of inventory in the service industry include:

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Overall, SLAs can play a critical role in helping to ensure that the service provider and
customer have a clear understanding of the service to be provided and that the service
provider is delivering the agreed-upon levels of service, leading to improved service quality,
increased accountability, better communication, and increased customer satisfaction.
In the service industry, inventory refers to the stock of goods and materials that are
required to support the delivery of services to customers. Inventory management plays
a crucial role in ensuring that the right products and materials are available when
needed, and in ensuring the smooth operation of service delivery processes.

1) Support for service delivery: Inventory is often required to support the delivery of
services, such as spare parts for equipment repair, or supplies for cleaning and
maintenance services.
2) Cost management: Inventory management helps to control costs by ensuring that
only the necessary products and materials are ordered, reducing waste and reducing
the risk of overstocking.
3) Customer satisfaction: Effective inventory management helps to ensure that
customers receive timely and high-quality services, which can enhance customer
satisfaction and loyalty.
4) Improved operational efficiency: By keeping inventory levels optimized, service
providers can reduce the time and effort required to manage stock, freeing up
resources for other tasks.
5) Increased revenue: By ensuring that inventory is readily available when needed,
service providers can reduce the risk of delays or interruptions in service delivery,
which can negatively impact revenue.
In conclusion, inventory management is an important aspect of service delivery in the service
industry. Effective inventory management can help to ensure that services are delivered
efficiently, cost-effectively, and with a high level of customer satisfaction.

Characteristics Of Service Inventory System

Service inventory systems are designed to manage the inventory of goods and materials
required to support the delivery of services to customers. The following are the key
characteristics of a service inventory system:

Service-oriented: A service inventory system should be designed specifically to support the

delivery of services, rather than physical goods.

Flexibility: The system should be flexible enough to adapt to the unique requirements of
different service delivery processes, such as equipment maintenance or cleaning services.
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Real-time information: The system should provide real-time information about inventory
levels and stock movements, so that managers can make informed decisions about inventory
management.

Integration with other systems: The service inventory system should be integrated with other
business systems, such as customer relationship management (CRM), to provide a complete
view of customer information and service delivery processes.

Mobile access: In many service delivery environments, employees may need to access
inventory information while working in the field. A service inventory system should provide

Automated ordering: The system should automate the ordering of inventory items, reducing
the risk of errors and improving efficiency.

Reporting and analysis: The system should provide detailed reports and analysis tools to
support decision-making and continuous improvement in service delivery processes.

In conclusion, a service inventory system should be designed specifically to support the

delivery of services, provide real-time information, be flexible and integrated with other
systems, provide mobile access, automate ordering processes, and provide reporting and
analysis tools

Relevant Cost Of Service Inventory System

The relevant cost of a service inventory system refers to the costs associated with managing
inventory that are directly related to the decision at hand in the service industry. These costs
are considered relevant because they will differ based on the decision made and will have an
impact on the outcome of the decision.
Some of the relevant costs of a service inventory system include:
Holding cost: This is the cost of storing inventory, including equipment storage costs,
insurance, and maintenance costs. Holding costs are relevant because they will differ based
on the quantity of inventory held, so they must be considered when determining the optimal
inventory level.
Ordering cost: This is the cost of ordering inventory, including transportation and handling
costs. Ordering costs are relevant because they will vary based on the frequency of orders
and the quantity ordered, so they must be considered when determining the optimal order
quantity.
Stockout cost: This is the cost of not having inventory available when needed, including lost
service revenue, expedited shipping, and customer dissatisfaction. Stockout costs are
relevant because they will vary based on the safety stock level, so they must be considered
when determining the optimal inventory level.
Maintenance cost: This is the cost of maintaining inventory, including regular maintenance,
repairs, and upgrades. Maintenance costs are relevant because they will vary based on the
quantity and type of inventory held, so they must be considered when determining the
optimal inventory level.
Labour cost: This is the cost of having employees manage inventory, including order
processing, stock management, and inventory analysis. Labour costs are relevant because
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they will vary based on the size and complexity of the inventory system, so they must be
considered when determining the optimal inventory level.
In conclusion, the relevant costs of a service inventory system are those costs that will vary
based on the decision made and will have an impact on the outcome of the decision. These
costs include holding costs, ordering costs, stockout costs, maintenance costs, and labour
costs.
Order Quantity Models
Order quantity models are mathematical models that help determine the optimal order
quantity for inventory management. The goal of these models is to minimize the total cost of
inventory, which includes the cost of holding inventory, ordering inventory, and stockouts.

There are several commonly used order quantity models, including:

Economic Order Quantity (EOQ) Model: This is one of the earliest and most widely used order
quantity models. It assumes that demand is constant, lead time is known and constant, and
the cost of ordering and holding inventory are constant. The EOQ model calculates the
optimal order quantity that minimizes the total cost of ordering and holding inventory.
Quantity Discount Model: This model takes into account the fact that suppliers often offer
quantity discounts for larger orders. The model calculates the optimal order quantity that
minimizes the total cost of ordering and holding inventory, including the cost of the quantity
discount.
Reorder Point Model: This model calculates the optimal order point, which is the inventory
level at which a new order should be placed. The model takes into account the lead time,
demand, and safety stock level to ensure that there is enough inventory to meet demand
while avoiding stockouts.
Continuous Review Model: This model assumes that inventory levels are continuously
monitored and orders are placed when inventory reaches a predetermined reorder point. The
model calculates the optimal order quantity that minimizes the total cost of ordering and
holding inventory, based on the lead time, demand, and safety stock level.
Inventory Rationing Model: This model is used when there is a limited budget for ordering
inventory. The model calculates the optimal order quantity that maximizes the expected
profit while staying within the budget constraint.
In conclusion, order quantity models are mathematical models used to determine the optimal
order quantity for inventory management. There are several commonly used order quantity
models, including the Economic Order Quantity (EOQ) Model, Quantity Discount Model,
Reorder Point Model, Continuous Review Model, and Inventory Rationing Model.

Economic order quantity (EOQ)

It is the best units to buy at time where the total cost of inventory is lowest. At this point, the
ordering and carrying cost is equal. It gives the answers of the questions about what unit to
buy at a time to minimize the cost of inventory. Economic order quantity (EOQ) is that size of
the order which gives maximum economy in purchasing any material and ultimately c n other
words, the economic order quantity (EOQ) is the amount of inventory to be ordered at a time
for the purpose of minimizing annual inventory cost. The quantity to be ordered at a given
time must be determined by balancing two factors: (1) the cost of carrying or possessing
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materials and (2) the cost of acquiring or ordering materials. Purchasing larger quantities may
decrease the unit cost of acquisition, but this saving may not be more than offset by the cost
of carrying materials in stock for a longer period of time. There are two costs attached to
stock:
Ordering Cost: All cost which are incurred during the ordering of stock. It includes all the cost
incurred from the date of initiation of purchase requisition to the date of receiving the
materials, inspecting them and storing them properly. It is also called set up cost. It includes
the following expenses:
• Phone calls, transportation cost.
• Remuneration to staffs posted in the purchasing department, inspection section and
payment department.
• Cost of stationery, postage, e-mail and internet, receipt and inspection cost etc.
Carrying Cost: It is the cost of holding the materials in the store. It is the cost incurred after
the acquisition of materials and before they are issued. It is also called holding cost, storing
cost etc. It includes the following cost:
• Holding cost
• Storage costs, like rent of the building
• Interest on investment of working capital, or interest on capital
• Insurance and property tax
• Storage cost, handling cost
• Deterioration, spoilage and shrinkage of stocks
• Obsolescence of stock
Now if we purchase all the required material in a single order, although we can save Ordering
Cost, but Holding Cost would be high, and if we purchase our material in several orders,
holding cost would be lowered, but Ordering Cost would be high. So, economic order quantity
is the balance between these two costs. Economic order quantity is cheapest taken as a
whole. At EOQ, both ordering cost and holding cost are equal.

EOQ = √(2AO/C)

When there is a quantity discount, the cost of ordering is no longer a constant value.
Instead, it depends on the order quantity and the discount offered. In this case, the cost
of ordering is calculated as:

TOTAL COST WITH DISCOUNT= A/Q*O + Q/2*C-DISCOUNT

Where, Discount= (A*per unit price*dis%)
Q is the order quantity
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A is the annual requirement

O ordering cost
C carrying cost
In conclusion, the EOQ model with a quantity discount takes into account the fact
that suppliers often offer quantity discounts for larger orders. The model calculates the
optimal order quantity that minimizes the total cost of ordering and holding inventory,
including the cost of the quantity discount. The cost of ordering is calculated as a function of
the order quantity and the discount offered, and the optimal order quantity is found by
minimizing the total cost of ordering and holding inventory.

An Inventory Model with Planned Shortage

An inventory model with planned shortage is a mathematical model that helps organizations
manage their inventory levels in such a way that they can meet the demand for a product
while still having a certain amount of shortage, also known as "safety stock". This shortage is
planned and deliberate, and is designed to account for unexpected demand spikes, supply
chain disruptions, and other factors that can affect the availability of a product. The purpose
of having a planned shortage is to balance the trade-off between the cost of holding too much
inventory and the cost of stockouts (running out of inventory).
The goal is to have just enough inventory to meet demand, while still having a buffer in place
to handle unexpected events. To implement an inventory model with planned shortage,
organizations use various techniques such as forecasting, demand analysis, and simulation to
determine the optimal levels of inventory to maintain. The model is then used to monitor
inventory levels and make decisions about when to place new orders, adjust safety stock
levels, or take other actions to maintain the balance between inventory levels and demand.

Safety stock level= Re order level –(normal consumption*normal

reorder period)

An inventory control system

An inventory control system is a set of software tools and processes used to manage and track
a company's inventory levels, orders, and deliveries. The main goal of an inventory control
system is to ensure that a company has the right amount of inventory on hand at all times to
meet customer demand while minimizing the cost of holding too much inventory.

An inventory control system typically includes the following components:

Inventory tracking: The system records information about each item in the inventory, such
as the item number, description, location, and quantity on hand.
Order management: The system keeps track of customer orders and helps the company
manage the process of fulfilling those orders.
Barcode scanning: Some inventory control systems use barcode scanning to quickly and
accurately track inventory movements.
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Reordering: The system helps the company determine when it's time to reorder inventory,
taking into account current inventory levels, lead times, and demand forecasts.
Reporting and analysis: The system generates reports that provide information about
inventory levels, sales, and other key metrics, which can be used to make informed decisions
about inventory management.
By automating many of the manual processes involved in inventory management, an
inventory control system can help a company improve accuracy, reduce costs, and increase
efficiency.

A continuous inventory review system

A continuous inventory review system is a type of inventory control system that involves
regularly monitoring and adjusting inventory levels to ensure that they align with current
demand and supply trends. This type of system is designed to be dynamic and responsive,
allowing companies to make quick decisions about inventory levels based on real-time data.
The key features of a continuous inventory review system include:
Real-time data: The system collects and processes data about sales, customer demand, and
other factors in real-time, allowing companies to make informed decisions about inventory
levels.
Automated reordering: The system automatically triggers reordering when inventory levels
reach a pre-determined threshold, reducing the risk of stockouts and overstocking.
Demand forecasting: The system uses advanced algorithms and machine learning techniques
to forecast future demand for products, helping companies plan for future inventory needs.
Inventory optimization: The system continually adjusts inventory levels based on real-time
data and demand forecasts, ensuring that the right amount of inventory is always on hand to
meet customer demand.
By continuously monitoring and adjusting inventory levels, a continuous inventory review
system helps companies minimize the cost of holding too much inventory, reduce the risk of
stockouts, and improve customer satisfaction.

A periodic inventory review system

A periodic inventory review system is a type of inventory control system that involves
regularly reviewing and adjusting inventory levels at set intervals, such as weekly, monthly,
or quarterly. The main goal of a periodic inventory review system is to ensure that inventory
levels align with current demand trends and that the right amount of inventory is always on
hand to meet customer needs.

The key features of a periodic inventory review system include:

Regular review intervals: Inventory levels are reviewed and adjusted on a regular basis, such
as weekly, monthly, or quarterly.
Physical inventory counts: The system often involves physically counting inventory levels to
ensure that the data in the system is accurate.
Reordering: Based on the results of the review, the system may trigger reordering to bring
inventory levels back in line with demand.
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Reporting and analysis: The system generates reports that provide information about
inventory levels, sales, and other key metrics, which can be used to make informed decisions
about inventory management.
A periodic inventory review system can help companies minimize the cost of holding too
much inventory and reduce the risk of stockouts by ensuring that inventory levels are in line
with demand. However, since reviews only occur at set intervals, this type of system may not
be as responsive to real-time changes in demand as a continuous inventory review system.

The ABCs of inventory control

The ABCs of inventory control is a method used to classify and prioritize items in a
company's inventory based on their importance and impact on the business. The ABC
method assigns each item to one of three categories: A, B, or C, based on its annual dollar
value, unit volume, or other relevant metrics.
The three categories are defined as follows:
A items: These are the most valuable items in terms of annual dollar value or unit volume. A
items typically make up a small percentage of the total number of items in the inventory, but
they account for a large percentage of the total value or volume.

B items: These are items that are less valuable than A items, but still play an important role
in the business. B items typically make up a larger percentage of the total number of items in
the inventory, but a smaller percentage of the total value or volume.

C items: These are the least valuable items in terms of annual dollar value or unit volume. C
items typically make up a large percentage of the total number of items in the inventory, but
a small percentage of the total value or volume.

Using the ABCs of inventory control, a company can prioritize its inventory management
efforts and focus on the items that are most important to the business. For example, A items
may require more frequent monitoring, closer attention to demand trends, and quicker
reordering, while C items may receive less attention and be managed with a less proactive
approach.
Overall, the ABCs of inventory control helps companies optimize their inventory levels, reduce
the cost of holding too much inventory, and improve customer satisfaction by ensuring that
the right amount of inventory is always on hand to meet demand.
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Chap4- Productivity And Quality Improvement

Concept of productivity and quality improvement

Improving productivity and quality in your business typically results in increased customer
and employee satisfaction. Using quality management system techniques such as process
mapping, benchmarking and Cost-benefit analysis, you can achieve regular improvement in
all your work-flow processes. Improved productivity results in fewer defects, fewer delays
and reduced costs.
5 Keys for Quality, productivity Improvement:
• Analyse your processes. Focus not on the people performing the job but on the tasks
they do. Standardize policies and procedures through your company to maximize
efficiency. Train all personnel adequately so they can produce high-quality products
and take pride in their work.
• Align your business processes with other companies in your industry.
• Develop performance measurements. Benchmark your current processes, identify
problems, predict future outcomes and measure productivity gains using key
performance indicators for your industry. For example, measure quality and
productivity in your customer support centre by measuring the time it takes to resolve
customer issues and the customer satisfaction rate for those support cases.
• Build quality testing into your processes — not at the end when it is more
expensive to fix. Perform testing on an iterative basis. Resolve defective
component problems as you encounter them without waiting for the entire
testing cycle to complete. Implement automated testing, if possible, because it
executes without human intervention and results in a pass or fail outcome that
is easy to interpret and act upon.
• Value employee, customer, supplier and business partner feedback and input
regarding solving product or service problems. Measure quality and
productivity gains by increases in customer satisfaction. Use customer feedback
to improve current products and influence the design of new ones. Leveraging
customer requirements in your process redesign efforts can help you focus your
efforts on the most lucrative areas of business in your industry. For example,
conduct surveys or focus groups to gather information to resolve top issues
with your product or service.

Service quality models

There are several models of service quality, among all some most frequently used models
throughout the world are as follows:

SERVQUAL: The SERVQUAL model is a widely used model for measuring and improving service
quality. It consists of a questionnaire that assesses customers' expectations and perceptions
of service quality across five dimensions: reliability, assurance, tangibles, empathy, and
responsiveness. The model identifies the gap between customers' expectations and their
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perceptions of the actual service quality, and suggests ways to improve the service to meet
customers' needs and expectations. The SERVQUAL model is widely used in a variety of
service industries, including healthcare, finance, hospitality, and transportation, among
others.
RATER: The RATER model is a framework for understanding and measuring service quality,
and it stands for five key dimensions of service quality: Reliability, Assurance, Tangibles,
Empathy, and Responsiveness. These dimensions provide a comprehensive approach for
assessing service quality and identifying areas for improvement. Reliability refers to the
consistency and dependability of the service, assurance relates to the knowledge and
professionalism of the service provider, tangibles encompass the physical aspects of the
service environment, empathy refers to the degree of understanding and caring
demonstrated by the service provider, and responsiveness relates to the speed and
effectiveness of the service. The RATER model can be used in a wide variety of service
contexts, and is a useful tool for organizations seeking to improve their service quality. It
involves evaluating the service based on the customer's perspective, with an emphasis on the
service delivery process rather than the outcome.
The Nordic model: The Nordic model of service is a customer-centric model that incorporates
both functional and emotional aspects of service quality. This model emphasizes the
importance of the service provider's role in shaping the customer's experience, and focuses
on building strong, long-term relationships with customers. The Nordic model of service
consists of three key elements: the service process, the service system, and the service
outcome. The service process refers to the way in which the service is delivered, the service
system encompasses the people, technology, and other resources that support the delivery
of the service, and the service outcome refers to the overall result of the service experience.
This model places a strong emphasis on customer satisfaction, and aims to create a positive
emotional connection between the customer and the service provider. The Nordic model of
service is used in a wide range of service industries, including healthcare, hospitality, and
transportation, among others.
The Six Sigma approach: The Six Sigma approach is a data-driven methodology for process
improvement that seeks to minimize defects, reduce variation, and improve overall quality.
The name "Six Sigma" refers to a statistical term that represents a level of quality that allows
for only 3.4 defects per million opportunities. The Six Sigma approach typically involves a five-
phase process called DMAIC (Define, Measure, Analyse, Improve, Control), which guides the
improvement efforts. The Six Sigma approach emphasizes the importance of continuous
improvement and the use of data to drive decision-making. It has been widely adopted in
manufacturing, healthcare, finance, and other industries, and has proven to be an effective
approach for achieving quality improvement and cost savings.
The Tolerance Zone model: This model suggests that customers have a tolerance range for
service quality, and that exceeding or failing to meet expectations can have different effects
on customer satisfaction and loyalty.
The 5 Es model - The 5 Es model is a customer-centric model for service quality that focuses
on five key factors: Empathy, Enthusiasm, Experience, Engagement, Ease. The 5 Es model
provides a framework for understanding and improving service quality by emphasizing the
importance of emotional engagement, simplicity, and customer satisfaction. This model is
widely used in service industries such as hospitality, healthcare, and retail, among others.
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CUSTOMER VALUE EQUATION

The dictionary meaning includes, ‘The regard that something is held to deserve; the
importance, worth, or usefulness of something’. Synonyms are merit, worth, usefulness, use,
utility, practicality, advantage, desirability, benefit, gain, profit, good, service, help,
helpfulness, assistance, effectiveness, efficacy, avail, importance, significance, point and
sense.
Value is created just as much by a focus on processes and systems as much as it is by mindset
and culture. Mindset and culture are much more difficult to change and emulate. It is easier
to copy products and systems than to change mindsets and culture. Therefore, for long-term
success, mindset and culture are important and lasting. These, along with systems create
great experience and value.
Creating customer value increases customer satisfaction and the customer experience. (The
reverse is also true. A good customer experience will create value for a customer.) Creating
customer value (better benefits versus price) increases loyalty, market share, price, reduces
errors and increases efficiency. Higher market share and better efficiency lead to higher
profits.
The customer value equation is a formula that measures the perceived value of a product or
service from the customer's perspective. It can be expressed as:
Customer Value = Benefits-(Costs + Hassle)
In this equation, Benefits refer to the perceived advantages or benefits that the customer
receives from the product or service, such as quality, features, convenience, or brand
reputation. Costs refer to the perceived expenses or sacrifices that the customer incurs in
order to acquire or use the product or service, such as price, time, effort, or risk.

By subtracting cost from benefits, the customer value equation provides a quantitative
measure of the perceived value of the product or service. When the Benefits is higher than
the Costs, the customer perceives high value and is more likely to purchase or use the product
or service. Conversely, when the Costs is higher the Benefits, the customer perceives low
value and is less likely to purchase or use the product or service. Therefore, understanding
and optimizing the customer value equation is important for companies seeking to increase
customer satisfaction and loyalty.
The customer value equation emphasizes the importance of understanding the customer's
perspective in determining the true value of a product or service, and provides a framework
for assessing the relative importance of benefits, price, and hassle in the customer's decision-
making process. By maximizing the benefits and minimizing the price and hassle, companies
can increase the perceived value of their offerings and improve customer satisfaction.
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stages in service firm competitiveness

Market entry: the service firm enters the market and establishes itself as a new player. During
this stage, the focus is on gaining market share and building a customer base.

Growth: the service firm experiences growth and expansion as it gains more customers and
expands its offerings. During this stage, the focus is on building a strong brand, improving
service quality, and expanding into new markets.

Maturity: the service firm reaches a mature stage where it has a stable customer base and a
well-established brand. During this stage, the focus is on maintaining market share, improving
efficiency and productivity, and finding new ways to add value for customers.

Decline: the service firm enters a decline stage where it faces increasing competition,
declining market share, and reduced profitability. During this stage, the focus is on identifying
the root causes of the decline and taking corrective action to turn the business around.

Renewal: the service firm may seek to renew itself by repositioning its offerings, investing in
new technology, or pursuing strategic partnerships. During this stage, the focus is on
identifying new growth opportunities and building a sustainable competitive advantage.

Service firms must continually assess their competitiveness and adapt to changing market
conditions to remain successful. By understanding the different stages of service firm
competitiveness, service providers can develop effective strategies to maintain their
competitive edge and achieve long-term success.

Continuous Improvement Is A Competitive Strategy

Continuous improvement is a competitive strategy that emphasizes the ongoing
improvement of processes, products, and services to enhance quality, efficiency, and
customer satisfaction. The goal of continuous improvement is to enhance quality, reduce
costs, increase efficiency, and improve customer satisfaction. By continually improving their
offerings and processes, service firms can gain a competitive advantage by providing higher
quality services at a lower cost. Continuous improvement involves a cyclical process of
planning, implementing, evaluating, and refining improvements.
This process can involve a range of techniques, such as statistical process control, lean
methodology, and Six Sigma. It requires a commitment to ongoing learning, data analysis, and
collaboration across the organization. One of the key benefits of continuous improvement is
that it promotes a culture of innovation and learning within the organization. By encouraging
employees to identify areas for improvement and to experiment with new ideas, service firms
can foster a culture of creativity and continuous learning, which can help them stay ahead of
the competition. This allows them to differentiate themselves from competitors and attract
and retain customers.
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By continuously improving their operations, organizations can achieve several competitive

advantages:
Improved customer satisfaction: By continually improving their products and services,
organizations can better meet the needs and expectations of their customers, resulting in
higher levels of customer satisfaction and loyalty.
Lower costs: Continuous improvement can help organizations identify and eliminate waste,
improve efficiency, and reduce costs, resulting in higher profits and a more competitive cost
structure.
Higher quality: Continuous improvement can help organizations improve the quality of their
products and services, resulting in fewer defects, fewer returns, and higher customer
satisfaction.
Greater agility: Continuous improvement can help organizations become more agile and
responsive to changing market conditions and customer needs, allowing them to adapt
quickly and maintain a competitive edge.
To implement continuous improvement as a competitive strategy, organizations must
establish a culture of continuous improvement, where employees at all levels are encouraged
to identify and solve problems, and where processes are continually evaluated and improved.
This requires a commitment to ongoing training, the use of data and metrics to measure
progress, and a willingness to embrace change and innovation. By making continuous
improvement a part of their competitive strategy, organizations can achieve long-term
success and maintain their competitive edge in a rapidly changing marketplace.
Overall, continuous improvement is a powerful competitive strategy for service firms that
seek to deliver high-quality services at a lower cost, build customer loyalty, and maintain a
sustainable competitive advantage over time.

Walk-Through Audit
A walk-through audit in a service environment typically involves a review of the various
processes and procedures that the service provider has in place to ensure that their services
are being delivered efficiently and effectively. A walk-through audit is a method of reviewing
a service by following the service process from beginning to end to identify potential issues
and areas for improvement. Thus, A walk-through audit is a type of audit or review in which
an auditor follows a process from start to finish to gain a comprehensive understanding of
the process and identify any potential issues or areas for improvement. It involves physically
walking through the steps of a process, observing the activities and operations being
performed, and reviewing the associated documentation and procedures. The goal of a walk-
through audit is to identify any weaknesses in the process, ensure compliance with relevant
regulations or standards, and provide recommendations for improvements. Walk-through
audits are commonly used in service industries, such as healthcare, finance, and customer
service, to assess the effectiveness and efficiency of their processes.
The steps involved in a walk-through audit may include:
1. Planning and scoping: This involve defining the scope and objectives of the audit and
determining which processes and procedures to review.
2. Documentation review: The auditor will review any relevant documentation, such as
standard operating procedures, service level agreements, and customer feedback. It
also involves Review of the service process documentation, including policies,
procedures, and training materials.
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3. Walk-through: Observing the service process in action, from beginning to end, to

identify any issues, bottlenecks, or inefficiencies.
4. Interviews: The auditor will interview key personnel, including service delivery
managers, frontline staff, and customers, to gain a better understanding of the service
processes.
5. Observation: The auditor may observe the service delivery process in action to see
how it is being carried out in practice.
6. Testing: The auditor may perform some tests to verify that the service is being
delivered in compliance with relevant standards and procedures.
7. Reporting: The auditor will compile their findings into a report, highlighting any areas
of concern or opportunities for improvement. This report summarizes the findings of
the audit, identifies areas for improvement, and makes recommendations for
corrective action.
Overall, a walk-through audit provides a comprehensive assessment of a service provider's
processes and procedures, helping to identify areas for improvement and ensure that the
service is being delivered to a high standard. By conducting a walk-through audit of a service,
organizations can gain a better understanding of their service delivery process, identify areas
for improvement, and take steps to improve the quality and efficiency of their service.
Blueprint For Service Excellence.
A blueprint is a detailed plan or outline of something, typically used in architecture,
engineering, or design, that specifies the dimensions, materials, and other specifications
necessary for construction or implementation. It can also refer to a general plan or strategy
for achieving a particular goal or objective. Blueprints often include diagrams, drawings, or
other visual representations of the plan, and may also include written instructions or
specifications.
Service excellence refers to the ability of a business or organization to consistently deliver
high-quality service that meets or exceeds customer expectations. It involves understanding
and anticipating customer needs, providing timely and effective solutions, and demonstrating
a commitment to continuous improvement. Service excellence can be achieved through a
combination of factors, such as a customer-focused culture, well-trained and empowered
employees, clearly defined service standards, effective communication, and a willingness to
go above and beyond to ensure customer satisfaction. Ultimately, service excellence is about
building long-term customer relationships and loyalty by providing a positive and memorable
service experience.
Collectively, Understanding and meeting customer needs and expectations and providing
timely and efficient service through, Empowerment and training of employees to provide
high-quality service can be referred as blueprint for service excellence. Encouraging and
responding to customer feedback, creating a positive and welcoming atmosphere.
A blueprint for service excellence may include the following key elements:
Customer focus: A customer-centric approach that emphasizes understanding and meeting
the needs and expectations of customers.
Service quality standards: Establishing clear standards for service quality and ensuring that
these standards are consistently met.
Employee training and development: Providing employees with the necessary training and
development opportunities to ensure they have the skills and knowledge to deliver
exceptional service.
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Effective communication: Ensuring that communication between employees and customers

is clear, timely, and respectful.
Continuous improvement: A commitment to continuously review and improve service
delivery processes and systems based on customer feedback.
Empowerment and ownership: Empowering employees to take ownership of customer
issues and resolve them quickly and effectively.
Service recovery: Having a well-defined process in place to address customer complaints and
resolve issues in a timely and satisfactory manner.
Accountability: Holding employees accountable for meeting service standards and delivering
exceptional service.
Recognition and rewards: Providing recognition and rewards to employees who consistently
deliver exceptional service to customers.

A Quality and Productivity Improvement Process

A quality and productivity improvement process involves identifying areas for improvement,
setting goals and targets, implementing changes, measuring and evaluating results, and
making further adjustments as needed. The process typically involves a systematic approach
to identifying inefficiencies, defects, or errors in a product or process and finding ways to
eliminate them or reduce their impact. This can lead to higher quality output, increased
efficiency, and lower costs over time.
1. Identifying areas for improvement: Identifying areas for improvement involves analysing
the current state of a product or process and determining where there are inefficiencies,
defects, errors, or opportunities for improvement. This can be done through various
methods such as data analysis, customer feedback, surveys, observations, or
brainstorming sessions. The key is to focus on areas that have the most significant impact
on quality or productivity and prioritize them based on their potential for improvement.
Once these areas are identified, specific goals and targets can be set to guide the
improvement process.
2. Setting goals and targets: Setting goals and targets involves identifying specific and
measurable objectives that you want to achieve within a certain timeframe. It can help
you stay focused, motivated, and accountable, and ultimately increase your chances of
success. When setting goals, it's important to ensure they are realistic, challenging, and
aligned with your values and priorities. It's also helpful to break down larger goals into
smaller, more manageable steps, and regularly track your progress towards achieving
them.
3. Implementing changes: Implementing changes refers to the process of putting new plans
or strategies into action in order to achieve a desired outcome. It involves identifying the
necessary resources, assigning responsibilities, setting timelines, and monitoring progress
to ensure successful execution. Effective communication and stakeholder engagement
are also key factors in successfully implementing changes.
4. Measuring and evaluating results: Measuring and evaluating results involves assessing
the outcomes of a particular project, initiative, or process to determine its effectiveness
and success. This can be done through various methods such as data analysis, surveys,
feedback, and other performance metrics. The goal is to determine whether the desired
outcomes have been achieved and to identify areas for improvement.
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5. Making Further adjustments: Further adjustments refer to additional modifications,

changes or tweaks made to a process, system, plan, or other element that has already
undergone some level of adjustment. These modifications are typically made with the
goal of improving or refining the outcome or performance of the adjusted element.

Quality Tools For Analysis And Problem Solving

Analysis is the process of examining something in detail to understand its structure,
components, and behaviour. It involves breaking down complex information into smaller
parts, identifying patterns, relationships, and connections between them, and drawing
conclusions based on evidence. Problem solving is the process of finding a solution to a
problem. It involves identifying the problem, gathering information, analysing the situation,
generating possible solutions, evaluating those solutions, and selecting the best one. Effective
problem solving often requires creativity, critical thinking, and decision-making skills.

1) Root cause analysis. Root cause analysis is a systematic process of identifying the
underlying cause(s) of a problem or an undesired event, in order to prevent recurrence.
It involves investigating the problem, identifying contributing factors, and identifying the
root cause(s) that, when addressed, can prevent similar problems in the future.
2) SWOT analysis: SWOT analysis is a strategic planning tool that helps identify an
organization's internal strengths and weaknesses, as well as external opportunities and
threats. It involves analysing the company's resources, capabilities, and competitive
environment to develop a strategic plan to achieve its objectives. SWOT stands for
Strengths, Weaknesses, Opportunities, and Threats.
3) Pareto analysis: Pareto analysis is a problem-solving technique that involves identifying
and focusing on the 20% of causes that are responsible for 80% of the effects. It is named
after Vilfredo Pareto, an Italian economist who observed that 80% of the land in Italy was
owned by 20% of the population. Pareto analysis is commonly used in quality control,
process improvement, and decision making to prioritize efforts and resources on the most
significant issues
4) Statistical analysis: Statistical analysis is a branch of mathematics that involves the
collection, analysis, interpretation, presentation, and organization of data. It uses
statistical methods and models to analyse patterns and relationships in the data, make
inferences and predictions, and test hypotheses. Statistical analysis is widely used in
various fields such as science, social science, business, and engineering to provide insights
and inform decision-making.
5) Process mapping: Process mapping is a visual representation of a process that describes
the sequence of steps, inputs, outputs, and decisions involved in completing a task or
achieving a goal. It involves the creation of a diagram or flowchart that shows how work
flows through an organization, including the roles and responsibilities of individuals, the
timing of each step, and the interactions between different parts of the process. Process
mapping is commonly used to identify inefficiencies, bottlenecks, and areas for
improvement in business processes, and it can help streamline operations and increase
efficiency.
6) Benchmarking: Benchmarking is a process of comparing the performance, practices, and
processes of an organization against those of industry leaders or best-in-class companies.
It involves identifying the key performance metrics and practices of successful
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organizations in a particular industry or field, and then comparing an organization's own

performance against these standards. The goal of benchmarking is to identify areas of
improvement, learn from the best practices of other organizations, and drive performance
improvement.

Tools For Quality Measurement and Improvement

Root cause analysis. Root cause analysis is a systematic process of identifying the underlying
cause(s) of a problem or an undesired event, in order to prevent recurrence. It involves
investigating the problem, identifying contributing factors, and identifying the root cause(s)
that, when addressed, can prevent similar problems in the future.
Statistical analysis: Statistical analysis is a branch of mathematics that involves the collection,
analysis, interpretation, presentation, and organization of data. It uses statistical methods
and models to analyse patterns and relationships in the data, make inferences and
predictions, and test hypotheses. Statistical analysis is widely used in various fields such as
science, social science, business, and engineering to provide insights and inform decision-
making.
Pareto analysis: Pareto analysis is a problem-solving technique that involves identifying and
focusing on the 20% of causes that are responsible for 80% of the effects. It is named after
Vilfredo Pareto, an Italian economist who observed that 80% of the land in Italy was owned
by 20% of the population. Pareto analysis is commonly used in quality control, process
improvement, and decision making to prioritize efforts and resources on the most significant
issues.
Failure Mode and Effects Analysis (FMEA): It is a systematic approach for identifying potential
failures in a process, product, or service, and evaluating their potential impact and likelihood.
FMEA is typically used during the design or development stage of a project to proactively
identify and mitigate potential risks before they occur.
TQM: TQM stands for Total Quality Management. It is a management approach that focuses
on continuous improvement in all aspects of an organization's operations, including products,
services, processes, and people. TQM is a customer-centric approach that emphasizes the
importance of understanding and meeting customer needs and expectations. TQM involves
the participation of all employees in the quality improvement process and the use of data and
metrics to drive decision-making and process improvement. The goal of TQM is to achieve
high levels of customer satisfaction, improve efficiency and productivity, reduce waste and
defects, and continuously improve organizational performance.
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CHAPTER 5- Resource Utilization

Concept of resource utilization
Resource utilization refers to the efficient and effective use of resources, such as labour,
materials, equipment, time, and money, to achieve desired outcomes. It is a critical aspect of
operations management and involves maximizing the value and output of available resources
while minimizing waste and inefficiencies. Resource utilization requires careful planning,
monitoring, and control of all resources involved in a process or project. By optimizing
resource utilization, organizations can improve productivity, reduce costs, and increase
profitability. Effective resource utilization also helps organizations to achieve their goals and
objectives in a timely and cost-effective manner.
Resource utilization involves identifying the resources needed to complete a task or project,
allocating those resources in the most effective way, and monitoring and managing their use
throughout the project or process. Effective resource utilization involves balancing the needs
of the organization with the availability and capacity of resources, maximizing the use of
available resources, and minimizing waste and inefficiency. Effective resource utilization can
help organizations to achieve their goals more efficiently, reduce costs, and improve overall
performance. Process of improving resource utilization involves following methods:
1. Resource Planning: Resource planning is the process of identifying the resources
that are required to complete a project or task, and allocating those resources in the most
effective and efficient manner possible. This involves identifying the resources needed for
a project, estimating their availability, and allocating them in a way that maximizes their
utilization. Effective resource planning can help organizations to maximize the use of
available resources, minimize waste and inefficiency, and improve overall productivity
and performance. It also helps to ensure that the project is completed successfully and
within the established timeline and budget.
2. Resource Optimization: Resource optimization is the process of adjusting
resource allocation and scheduling to maximize resource use, improve efficiency, and
reduce waste. This involves using tools and techniques to identify inefficiencies and waste
in resource usage, and making changes to improve utilization. By optimizing resource
utilization, organizations can increase efficiency, reduce costs, and improve overall
performance. Effective resource optimization requires a deep understanding of resource
requirements and limitations, as well as a commitment to continuous improvement and
ongoing evaluation of resource utilization.
3. Process Improvement: Process improvement is the act of identifying and
analysing existing business processes, and then making changes to improve their
efficiency, effectiveness, and overall performance. The goal of process improvement is to
eliminate waste, reduce costs, improve quality, and increase productivity. This involves
analysing processes and identifying opportunities to streamline them, remove
bottlenecks, and optimize resource usage. y improving processes, organizations can
reduce costs, increase efficiency, and improve quality, which can help them to better
compete in the marketplace and achieve their business goals. Process improvement is an
ongoing process, and requires a commitment to continuous improvement and ongoing
evaluation of process performance.
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4. Technology & Automation: This involves using technology tools and software to
improve resource planning, management, and tracking and automating repetitive and
manual tasks to reduce the need for human resources and improve efficiency. By
leveraging technology to improve resource utilization, organizations can increase
efficiency, reduce costs, and improve overall performance. It's important to choose
technology tools that are appropriate for the specific needs and goals of the organization.
5. Training and Development: This involves investing in the skills and knowledge
of employees required for core tasks which cannot be replaced by the use of technology
and automation. This enables them to be efficient enough to use such technologies and
take their level of productivity to the optimum level for resource utilization.
By implementing these methods, organizations can improve their resource utilization, reduce
waste, improve efficiency, and increase their overall performance.

Capacity Management
Capacity management is the process of ensuring that an organization has the necessary
resources, infrastructure, and processes in place to meet its current and future needs.
Capacity management involves planning, monitoring, and adjusting resources and processes
to ensure that they are optimized to meet changing demands and maximize efficiency and
productivity.
Capacity management typically involves several key steps, including:
1. Capacity planning: Capacity planning is the process of determining the resources
and infrastructure required to meet an organization's current and future needs. It involves
forecasting the demand for services and products, and determining the resources
necessary to meet that demand. Capacity planning is an important aspect of business
planning, as it helps organizations to identify potential capacity constraints and to plan
accordingly to avoid service disruptions, reduce costs, and maximize productivity
2. Resource allocation: Resource allocation is the process of assigning and managing
resources such as personnel, finances, and equipment to achieve specific goals or
objectives. It involves determining which resources are needed, how they should be used,
and how they should be distributed across different projects or activities. Effective
resource allocation requires a clear understanding of an organization's goals and
priorities, as well as a comprehensive understanding of the available resources
3. Performance monitoring: It is the process of measuring and analysing an
organization's performance in order to identify areas of strength and weakness, and to
take corrective action where necessary. It involves collecting and analysing data on key
performance indicators (KPIs) such as productivity, efficiency, customer satisfaction, and
quality of service.
4. Capacity optimization: Capacity optimization is the process of maximizing the use
of available resources to achieve optimal performance and efficiency. It involves
identifying and addressing performance bottlenecks, reducing waste and inefficiencies,
and making better use of existing resources to meet increasing demand or workload.
Effective capacity optimization requires a deep understanding of an organization's
resource utilization, performance bottlenecks, and service level requirements.
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5. Continual improvement: Continual improvement is the ongoing process of

improving an organization's processes, products, or services over time. It involves a
commitment to identify areas of improvement, implement changes, and evaluate the
results to continuously enhance performance and effectiveness. The key principle of
continual improvement is to regularly review and analyse performance data to identify
areas of improvement and to implement changes to address them.
Thus, Effective capacity management can help organizations to reduce costs, increase
efficiency, and improve the quality of services delivered. By monitoring and optimizing
resource utilization, organizations can ensure that they have the necessary capacity to meet
changing demands, avoid unnecessary downtime, and minimize the risk of service
disruptions.

Operations planning and control

Operations planning and control refer to the process of designing, executing, and
monitoring operational activities to ensure they align with organizational objectives. It
involves setting goals, establishing procedures, allocating resources, and monitoring
performance to ensure efficiency and effectiveness in achieving desired outcomes.
Operational planning and control are management processes used to ensure the
efficient and effective use of resources to achieve organizational goals. Thus,
Operational planning involves setting objectives, identifying resources needed, and
developing strategies to achieve those objectives. Operational control involves
monitoring and adjusting processes to ensure they are meeting established goals and
standards. Both processes are essential for organizations to achieve their goals and
improve performance.
The process of operational planning and control typically involves the following steps:
1. Set objectives: Setting objectives involves identifying specific and measurable goals
that an organization wants to achieve. Objectives should be aligned with the
organization's mission and vision, and they should be challenging yet achievable within a
defined timeframe. Identify the goals that the organization wants to achieve. o set
effective objectives, organizations can follow the SMART criteria: Specific, Measurable,
Achievable, Relevant and Time-bound.
2. Identify resources: identifying resources involves determining the people, materials,
equipment, and other resources needed to achieve the objectives set by the organization.
By effectively identifying the resources required to achieve their objectives, organizations
can ensure that they have the necessary tools, skills, and equipment to successfully
execute their operational plans. This can help to increase efficiency, productivity, and
ultimately, the likelihood of achieving success.
3. Develop strategies: Developing strategies involves creating a plan to allocate
resources and achieve the objectives set by the organization. Strategies should take into
account factors such as budget, time, and constraints, and should be aligned with the
organization's mission and vision. This can help to ensure that resources are allocated
efficiently and effectively, and that the organization is able to achieve its goals and
objectives.
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4. Implement plans: Implementing plans involves putting the strategies into action by
assigning tasks to individuals or teams, providing necessary resources, and monitoring
progress. Effective implementation requires clear communication, collaboration, and the
ability to adapt to changing circumstances. By effectively implementing plans,
organizations can ensure that strategies are put into action and that progress is made
towards achieving their objectives. This can help to build momentum and motivation, and
can ultimately lead to greater success.
5. Monitor and control: Monitoring and control involves tracking progress towards the
objectives, identifying problems and opportunities, and adjusting the plan as needed to
stay on track. Effective monitoring and control require ongoing evaluation and analysis,
as well as the ability to adapt to changing circumstances. By effectively monitoring and
controlling the implementation of the plan, organizations can ensure that progress is
being made towards achieving their objectives, and that resources are being used
efficiently and effectively.
6. Evaluate and improve: Evaluating and improving involves assessing the effectiveness
of the operational plan and making changes to improve its performance. This process is
critical for ensuring that the organization is meeting its objectives and making progress
towards its goals. By continuously evaluating and improving the operational plan,
organizations can adapt to changing circumstances and ensure that they are meeting their
objectives in the most effective and efficient way possible.
By following these steps, organizations can ensure that they are making the best use of their
resources and working towards achieving their goals.

Bottlenecks
In the context of operational planning and control, a bottleneck is a point in a process where
the flow of work is restricted or slowed down, leading to a backlog of work or a delay in
completing tasks. Bottlenecks can occur due to various reasons, such as lack of capacity,
inefficient work processes, or equipment breakdowns. Bottlenecks can have a significant
impact on the overall efficiency and effectiveness of a process, and can lead to increased
costs, longer lead times, and reduced customer satisfaction. Effective management of
bottlenecks is important to ensure that work flows smoothly through the process and that
the organization can meet its objectives efficiently and effectively.

Managing bottlenecks and queues is a key aspect of operational planning and control.
Bottlenecks are points in the process where the flow of work is restricted, while queues are
the waiting lines that form when demand exceeds capacity.
To effectively manage bottlenecks organizations can follow these steps:
1. Identify bottlenecks: Identifying bottlenecks is an important step in managing and
improving processes. To identify bottlenecks, map out the entire process, including all the
activities and steps involved in producing or delivering the product or service. Measure
the time taken for each activity or step in the process. Analyse how work flows through
the process, identifying any points where work is delayed or stopped. Calculate the
capacity utilization rate for each resource or activity in the process. Use performance
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metrics such as throughput, cycle time, and queue length to identify areas where the
process may be experiencing bottlenecks.
2. Understand the bottleneck: Gather information about the bottleneck, such as its
capacity and the factors that cause it. To understand a bottleneck, you need to identify
which part of the process is causing the delay or backlog. This can be done by analysing
the flow of work or materials through the process and identifying where the work is piling
up or waiting for resources.
3. Analyse the impact: Bottlenecks can have a significant impact on the overall
performance of the system, and understanding these impacts is crucial in developing an
effective solution. some major impacts can be Delays, quality issues, increase cost, poor
morale and so on. By analysing the impacts of a bottleneck, you can develop a plan to
manage it effectively and improve the overall performance of the system.
4. Develop a plan: Brainstorm and identify potential solutions to address the bottleneck.
This can involve increasing capacity, changing the process, or improving efficiency.
Evaluate each solution based on its feasibility, effectiveness, and cost. Based on the
evaluation, select the most appropriate solution and develop an action plan to implement
it.
5. Implement the plan: Communicate the plan to all stakeholders, including employees,
managers, and suppliers. Ensure that everyone is aware of the goals and the steps needed
to achieve them. Allocate the necessary resources, including manpower, equipment, and
materials, to implement the plan. Train employees on the new processes, equipment, or
procedures that will be used to address the bottleneck. Ensure that everyone is clear on
their roles and responsibilities. Pilot the solution on a small scale before rolling it out fully.
This can help identify any potential issues or unintended consequences before they
become bigger problems.
6. Continuously improve: Monitor the progress of the implementation and evaluate its
effectiveness. Monitor the progress of the implementation and evaluate its effectiveness.
Use metrics to track performance and ensure that the solution is achieving its goals. Make
adjustments as needed to optimize the performance of the process or system. This may
involve refining the plan or making changes to the process or system.
By effectively managing bottlenecks and queues, organizations can ensure that work flows
smoothly and efficiently through the process, which can help to improve productivity, reduce
waiting times, and enhance customer satisfaction.

Queues
In the context of operational planning and control, a queue refers to a waiting line that forms
when demand for a product or service exceeds the available capacity to produce or deliver it.
Queues can occur in various settings, such as in retail stores, call centres, transportation, and
manufacturing. Queues can have a negative impact on the efficiency and effectiveness of the
process, as they can lead to longer lead times, reduced customer satisfaction, and increased
costs. Effective management of queues is important to ensure that work flows smoothly
through the process, and that customers are served promptly and efficiently. This can be
achieved by implementing strategies such as optimizing capacity, improving work processes,
and providing clear communication to customers.
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Managing queues
Analyse the queue: Analyse the queue to understand the factors that are causing it, such as
the arrival rate of work, the service rate, and the capacity of the system.
Optimize the service rate: Optimize the service rate by making sure that the people,
machines, or other resources involved in processing the work are working efficiently and at
maximum capacity.
Prioritize work: Prioritize the work to ensure that the most important or urgent work is
processed first. This can involve assigning priority levels to different types of work or using a
first-in, first-out (FIFO) system.
Reduce wait times: Reduce wait times by streamlining the process, reducing the number of
handoffs or steps involved, and eliminating any unnecessary delays or idle time.
Communicate with customers: Communicate with customers to manage their expectations
and keep them informed of their place in the queue. This can involve providing estimated
wait times, offering alternatives or options, or providing updates on the progress of the work.
Monitor and improve: Monitor the queue and continuously improve the process or system
to ensure that wait times are minimized and the service rate is optimized.
By managing queues effectively, you can improve the throughput and efficiency of the
process or system, increase customer satisfaction, and achieve your goals.

Capacity zone
A capacity zone is a specific area or shift within a process or system that is designed to match
the capacity needs for a given period of time. This is typically used in industries where demand
fluctuates over time, such as retail, hospitality, or transportation. By dividing the available
resources into zones or shifts that can be adjusted as needed, organizations can optimize their
capacity utilization and ensure that they are meeting demand during peak periods, while
avoiding overstaffing or overproduction during off-peak periods. Effective management of
capacity zones involves analysing demand, determining capacity needs, creating capacity
zones, optimizing resource utilization, managing inventory, and monitoring and adjusting the
zones as needed.
Managing capacity zones is an important aspect of managing a process or system, especially
in industries where demand fluctuates over time. Here are some steps to consider when
managing capacity zones:
Analyse demand: Analyse the demand for the product or service to determine the peak
and off-peak periods. This can involve looking at historical data, market trends, and other
relevant factors.
Determine capacity needs: Determine the capacity needs for each period based on the
demand analysis. This can involve determining the minimum and maximum capacity needed
for each period.
Create capacity zones: Create capacity zones that match the capacity needs for each
period. This can involve dividing the available resources into zones or shifts that can be
adjusted as needed.
Optimize resources: Optimize the use of resources within each zone to ensure that the
capacity is being used efficiently. This can involve adjusting schedules, staffing levels, or
production processes as needed.
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Manage inventory: Manage inventory levels to ensure that there is enough inventory to
meet demand during peak periods, without overstocking during off-peak periods.
Monitor and adjust: Monitor the capacity zones and adjust them as needed based on
changes in demand or other factors. This can involve shifting resources between zones,
adjusting production processes, or changing the inventory levels.
By managing capacity zones effectively, you can ensure that the process or system is
operating efficiently and that the capacity is being used optimally. This can help to reduce
costs, improve customer satisfaction, and achieve your goals.

Performance management
Performance management is the process of creating a work environment or system that
enables people to perform to the best of their abilities. It involves setting clear expectations,
providing ongoing feedback, coaching and support, and evaluating progress toward goals. The
goal of performance management is to improve individual, team, and organizational
performance.
The performance management process typically includes the following steps:
Goal-setting: Setting clear and specific goals that are aligned with organizational objectives
and individual roles and responsibilities. Goal setting is the process of identifying specific,
measurable, achievable, relevant, and time-bound objectives that an individual or an
organization aims to achieve. Effective goal setting is an essential part of performance
management and is critical to achieving success in any endeavour.
Performance planning: Performance planning is the process of developing a plan or strategy
to achieve specific goals and objectives. This is an important part of the performance
management process, as it helps to ensure that individuals and teams are clear on what they
need to do and how they will achieve their objectives. Developing plans that outline the
strategies, resources, and timelines needed to achieve the goals.
Performance feedback: Performance feedback is the process of providing individuals or
teams with information about their progress and performance toward specific goals or
objectives. The goal of performance feedback is to help individuals or teams identify areas of
strength, as well as opportunities for improvement, so they can continue to grow and develop
in their roles. Providing ongoing feedback and coaching to individuals or teams to help them
understand how they are progressing toward their goals, and identifying opportunities for
improvement.
Performance evaluation: Performance evaluation is the process of assessing an individual's
or team's performance against specific goals or objectives. It is a formal process that typically
takes place annually or semi-annually, and is an important part of performance management.
Conducting periodic reviews or evaluations to assess individual or team performance against
the goals and expectations can gain a better understanding of how their employees are
performing, and what they can do to support their growth and development. This can help to
improve overall performance, productivity, and employee satisfaction, and ensure that the
organization is meeting its strategic objectives.
Performance improvement: Performance development is the process of developing an
individual's or team's skills, knowledge, and abilities to improve their overall performance and
achieve specific goals or objectives. It is an important part of the performance management
process, and is typically focused on the future, rather than evaluating past performance. By
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focusing on performance development, organizations can help their employees to continually

improve their skills, knowledge, and abilities, and ensure that they are equipped to meet the
changing needs of the organization.
Effective performance management can help organizations to achieve their strategic
objectives, enhance employee engagement and motivation, and identify areas for
development and growth. It is an ongoing process that requires continuous communication
and collaboration between managers and employees to create a supportive and productive
work environment.
Performance Measurement
There are several different methods of performance management, each with their own
strengths and weaknesses. Some common methods include:

1. Goal setting: Setting specific goals or objectives for individuals or teams, and assessing
their performance based on how well they achieve these goals. Goal setting is the process
of defining specific, measurable, achievable, relevant, and time-bound (SMART)
objectives that an individual or organization aims to achieve. The purpose of goal setting
is to provide a clear focus and direction for individuals or teams, and to ensure that they
are working towards achieving the organization's overall vision and strategic objectives.
2. 360-degree feedback: 360-degree feedback, also known as multi-rater feedback, is a
performance management method in which an individual's performance is evaluated by
a variety of sources, including peers, subordinates, superiors, customers, and other
stakeholders. The purpose of 360-degree feedback is to provide a more comprehensive
and objective view of an individual's performance, by gathering feedback from a variety
of perspectives. The feedback is usually collected anonymously and compiled into a
report, which is then used to identify strengths and areas for improvement.
3. Performance appraisal: Performance appraisal is a formal process of evaluating an
individual's performance against established criteria and standards. The purpose of
performance appraisal is to provide feedback on an individual's performance, identify
areas for improvement, and support career development. t's important to note that
performance appraisal should be an ongoing process that happens throughout the year,
rather than just once a year. This helps to ensure that individuals receive regular feedback
on their performance and have the support they need to achieve their goals.
4. Management by objectives (MBO): Management by objectives (MBO) is a management
approach in which specific goals and objectives are set collaboratively by managers and
their subordinates. These objectives are then used to evaluate performance and progress
toward achieving organizational goals. The MBO process typically involves regular
performance reviews and feedback to help employees stay on track and make necessary
adjustments.
5. Continuous feedback: Continuous feedback refers to a process of providing ongoing,
frequent feedback to an individual or team in order to improve performance, increase
motivation, and facilitate learning. It involves giving feedback in a timely and specific
manner, and often incorporates regular check-ins and conversations. Continuous
feedback is often used in performance management and coaching contexts, and is seen
as a more effective and efficient approach than traditional annual or bi-annual
performance reviews.
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Each method has its own benefits and drawbacks, and organizations may choose to use a
combination of methods to provide a more comprehensive picture of performance. The key
is to choose a method that aligns with the organization's goals and objectives, and to ensure
that it is applied fairly and consistently across all individuals or teams.

Purposes Of Performance Measurement

Evaluate performance: Performance measurement allows organizations to assess how well
they are achieving their goals and objectives. By comparing actual performance against
desired performance, organizations can identify areas of success and areas for improvement.
Facilitate decision-making: Performance measurement provides data that can be used to
make informed decisions about how to allocate resources, prioritize activities, and improve
performance. It helps managers to identify which programs, processes or services are
performing well and which ones need to be improved.
Monitor progress: Performance measurement allows organizations to track their progress
over time, identify trends and patterns, and make adjustments as needed. It helps to ensure
that progress is being made towards achieving strategic objectives.
Improve accountability: Performance measurement promotes transparency and
accountability by providing a basis for reporting performance to stakeholders, including
customers, employees, investors, and the public. It helps to demonstrate that resources are
being used efficiently and effectively.
Foster learning and continuous improvement: Performance measurement can be used to
identify best practices, share knowledge, and encourage learning and innovation. By analysing
data and identifying areas for improvement, organizations can continually improve their
performance and increase their competitive advantage.

Balance Of Performance Measure

The Balanced Scorecard is a popular performance measurement framework that aims to
provide a balanced view of an organization's performance across multiple dimensions. It
includes a set of measures that are grouped into four perspectives:

Financial perspective: This perspective focuses on financial performance measures, such as

revenue growth, profitability, and return on investment (ROI).
Customer perspective: This perspective focuses on customer-related measures, such as
customer satisfaction, retention, and loyalty.
Internal process perspective: This perspective focuses on operational performance
measures, such as cycle time, quality, and efficiency.
Learning and growth perspective: This perspective focuses on measures related to employee
learning and development, such as employee satisfaction, skills development, and innovation.

By including measures from each of these perspectives, the Balanced Scorecard aims to
provide a more complete and balanced view of an organization's performance. It is designed
to help organizations align their strategy with their goals and objectives, and to ensure that
all areas of the organization are working together to achieve those goals. The Balanced
Scorecard can be customized to fit the needs of different organizations and can be used in a
variety of settings, including business, government, healthcare, and education.
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Benchmarking
Benchmarking is the process of comparing an organization's performance, processes, or
practices to those of other organizations or industry standards. The objective of
benchmarking is to identify areas for improvement and to adopt best practices in order to
increase performance, productivity, and quality. The benchmarking process typically involves
the following steps:
Identify the area to be benchmarked: Determine the processes, practices, or functions that
need to be improved.
Identify benchmarking partners: Identify other organizations or industry standards that are
considered best-in-class in the chosen area.
Collect data: Collect and analyse data from the benchmarking partners and compare it to the
organization's own data.
Identify gaps and opportunities: Identify areas where the organization is underperforming or
where there are opportunities for improvement.
Develop and implement an action plan: Develop an action plan to close the gaps and adopt
best practices.
There are several different types of benchmarking, including internal benchmarking,
competitive benchmarking, functional benchmarking, and strategic benchmarking.
Benchmarking can be a powerful tool for organizations to improve their performance and
remain competitive in their industry.
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Enhanced collaboration Giving your suppliers a personalized experience right from

the start, Tradeshift Engage strengthens communication by storing and
consolidating conversation history. Users can easily collaborate on tasks, attach
necessary documents, and search for old records, all within our digital platform.
 87

Embrace of digitization The Tradeshift network acts as a digital hub to support

and assist with your supply chain needs. Suppliers enjoy access to our powerful
digital tools, improving their processes and capitalizing on new opportunities. Plus,
when suppliers sign up for Tradeshift Engage, they also gain access to our online
payments portal, helping you secure payments more quickly.

Start investing more time and effort into cultivating strong supplier
relationships. To learn more about how Tradeshift Engage can
assist with your supplier relationship management, reach out to
one of our experts or sign up for a free demo now.
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