Unit 1: Introduction to Service Operations

Introduction to Service Operations

Service Operations Management is the process of designing, delivering, managing, and improving the services provided to customers. Unlike manufacturing, where products are tangible, services are intangible and involve a high level of human interaction. Service operations aim to provide high-quality customer experience efficiently and consistently.

Nature and Characteristics of Services

Services have unique features that differentiate them from physical goods. The most important characteristics are:

1. Intangibility

Services cannot be seen, touched, or stored.
Example: Hospital treatment, teaching, banking advice.
Customers judge service quality through experience, brand, and reviews.

2. Inseparability

Production and consumption happen simultaneously.
The provider and customer must interact at the same time.
Example: A haircut is produced and consumed at the same moment.

3. Variability (Heterogeneity)

Service quality varies from person to person, location to location, and day to day.
Example: Different employees may provide different levels of customer service.

4. Perishability

Services cannot be stored for future use.
Example: An empty airline seat today cannot be used tomorrow.

5. Lack of Ownership

Customers get access or experience, not ownership.
Example: Using a hotel room does not mean owning it.

Classification of Service Industries

Service industries can be classified based on different criteria:

A. Based on Degree of Labor vs. Equipment

Equipment-based services - ATM, online banking, amusement parks.
People-based services - Teachers, doctors, lawyers.

B. Based on Profit Orientation

Profit Services - Banks, airlines, hotels, consulting.
Non-Profit Services - Schools, hospitals, NGOs, government services.

C. Based on Customer Contact

High-contact services - Hospitals, salons, restaurants., Customer must be physically present.
Low-contact services - Online shopping, call centers.,Interaction through technology.

D. Based on Tangibility of Service Act

Service directed at people (medical care, education)
Service directed at physical objects (repairs, cleaning)
Service directed at mental stimulus (media, entertainment)
Service directed at information (banks, consultancy)

Evolution of Service Operations Management

Service operations have evolved in different stages:

1. Traditional Stage (Before 1970s)

Services were simple, mostly personal and local. Examples: Barber shops, small clinics, local banking.

2. Industrialization of Services (1970s–1990s)

Services adopted manufacturing principles such as:

Standardization
Process improvement
Automation
Emergence of large service firms: McDonald's, FedEx, banks, hotels.

3. Service Quality Revolution (1990s–2000s)

Focus shifted to customer satisfaction, service quality, and relationship management.

Concepts emerged:

SERVQUAL model
Total quality management (TQM)
Just-in-time (JIT) services

4. Digital Transformation (2000s–Present)

Technology became the backbone of services.

Growth of:

Online banking
E-commerce
Food delivery apps
Cloud-based services
High use of automation and data analytics.

5. Current Era: AI & Experience Economy

Artificial Intelligence, chatbots, mobile apps, and service analytics are shaping modern service delivery.
Focus on customer experience, personalization, and convenience.

Service Economy and Growth of Services

The world is shifting from manufacturing-based economies to service-based economies.

Reasons for Growth of Services

1. Rising Income and Lifestyle Changes

Higher incomes → increased demand for hospitality, travel, healthcare, education.

2. Technological Advancements

Online banking, telemedicine, cloud services, AI-powered customer support.

3. Globalization

Call centers, outsourcing, BPO, IT services expanding globally.

4. Urbanization

More urban areas → more restaurants, malls, transport, entertainment.

5. Increased Focus on Convenience

People prefer services that save time (e.g., Zomato, Swiggy, Ola, Uber).

6. Industrial Growth & Support Services

Companies need logistics, finance, IT, consulting, facility management.

7. Shift to Knowledge-based Economy

Rise of IT, finance, consulting, digital marketing, analytics.

Service Encounter

A service encounter is the moment when a customer interacts with the service provider.
It is also called the “moment of truth”, because customers judge service quality during these interactions.

Types of Service Encounters

Remote Encounters - No physical contact. Example: Mobile banking, websites, ATMs, email service.
Phone/Voice Encounters Interaction through call centers or customer support.
Face-to-Face Encounters Direct physical interaction. Example: Restaurants, hospitals, hotels, retail stores.

Components of Service Encounter

Service personnel behaviour (friendliness, politeness)
Customer behaviour
Service environment (cleanliness, layout)
Technology support

Importance

Builds customer satisfaction and loyalty
Creates competitive differentiation
Helps in service recovery when things go wrong

Service Delivery System

A service delivery system describes how the service is created and delivered to customers.

Components of a Service Delivery System

Facility Design & Layout - Seating arrangement, workflow, interior design.
Service Process Design - Steps involved in delivering service (ordering → cooking → serving).
People - Employees, training, skills, behaviour.
Technology - POS systems, apps, appointment software, self-checkout.
Service Quality Standards - Timeliness, accuracy, customer experience guidelines.
Policies & Procedures - Rules on customer handling, safety, billing, complaints.

Objective

Deliver service efficiently, consistently, cost-effectively, and with high quality.

Service Process Matrix

Developed by Schmenner, the Service Process Matrix classifies services based on:

Degree of labor intensity (High/Low)
Degree of customer interaction & customization (High/Low)

The four quadrants:

1. Service Factory (Low labor intensity, Low customer interaction)

Highly standardized
Focus on efficiency
Examples: Airlines, Hotels, Fast-food chains

2. Service Shop (Low labor intensity, High customer interaction)

Customized services
Relies on professional skills more than physical labor
Examples: Hospitals, Car repair workshops, IT services

3. Mass Service (High labor intensity, Low customer interaction)

Many transactions
Process-driven services
Examples: Retail stores, Schools, Banks

4. Professional Service (High labor intensity, High customer interaction)

Highly customized
Knowledge-intensive services
Examples: Lawyers, Consultants, Doctors

Purpose of the Service Process Matrix

Helps companies decide how to position their service,
Decide operational focus,
Improve cost, quality, and productivity.

Service Positioning Strategies

Positioning refers to how a service company differentiates itself in the mind of the customer.

Common Service Positioning Strategies

1. Cost Leadership Strategy

Provide services at the lowest possible cost.
Example: Indigo Airlines, McDonald's (standardization).

2. Differentiation Strategy

Offer unique service features like premium experience.
Example: Taj Hotels, Starbucks, Apple Stores.

3. Focus/Niche Strategy

Target a specific segment only.
Example: Luxury spas, cardiac hospitals, boutique consulting firms.

4. Speed & Convenience Strategy

Faster delivery of services.
Example: Swiggy, Zomato, Ola, Uber, quick banking apps.

5. Customization Strategy

Tailoring the service to customer needs.
Example: Personalized travel planning, education coaching.

Role of Service Operations in Organizational Competitiveness

Service operations play a key role in creating a competitive advantage for organizations.

1. Improved Service Quality

Ensures customers get the best experience, increasing loyalty and referrals.

2. Cost Efficiency

Efficient processes reduce wastage and increase profitability.

3. Innovation and Technology Use

Helps create new service models (e.g., mobile apps, AI, self-service kiosks).

4. Faster Response Time

Quick service delivery improves customer satisfaction and competitive edge.

5. Better Capacity Management

Helps manage fluctuating demand (hotels, transport, healthcare).

6. Employee Productivity

Training and efficient operations increase employee performance.

7. Customer Relationship Management

Consistent service operations build trust and long-term relationships.

8. Supports Branding

Smooth, reliable service becomes part of the company’s identity.

9. Enables Global Expansion

Standardized service operations allow companies to grow internationally.

Conclusion

Service operations influence service quality, efficiency, customer satisfaction, and overall competitiveness. Concepts like service encounter, service delivery system, and the service process matrix help organizations design services that are efficient, customer-friendly, and strategically positioned in the market.