Content uploaded by Rhian Silvestro
Author content
All content in this area was uploaded by Rhian Silvestro on Jul 03, 2014
Content may be subject to copyright.
Volume-variety
diagonal
399
International Journal of Operations &
Production Management,
Vol. 19 No. 4, 1999, pp. 399-420.
# MCB University Press, 0144-3577
Positioning services along the
volume-variety diagonal
The contingencies of service design,
control and improvement
Rhian Silvestro
University of Warwick, Coventry, UK
Keywords Design, Improvement, Management control, Operations management,
Process management, Service levels
Abstract Draws on the service management literature to enhance understanding of the key
operational differences in managing professional services, at one extreme, and mass services, at
the other. Contributions are drawn together, developed and integrated into the service process
model. This yields an understanding of the contingencies which render the design, control and
improvement of different service processes appropriate. Strategic implications of the service
process model are considered. It is contended that cost effective services will be positioned along
the volume-variety diagonal. It is proposed that the service process model can be used as a
strategic tool in three ways. First, it can be used to evaluate possible strategic moves along the
volume-variety diagonal. Second, it can be used to analyse a competitive area and evaluate a
service offering relative to the competition. Third, it can be used to analyse internal
organisational processes with a view to identifying processes which have different volume-
variety characteristics and which should therefore perhaps be managed separately.
Introduction
The production process model has occupied a central position in the production
operations literature for several decades. Postulating an inverse correlation
between production volume and variety, the model has formed a basis for
understanding the nature of manufacturing operations, has underpinned
manufacturing strategy and has informed much of the teaching of production
management. The author collaborated with colleagues some years ago to
develop a service process model, analogous to the production process model.
The model distinguished three service types and it was argued that the nature
of management control was contingent upon a service's classification as a
professional service, service shop or mass service. However, the full
implications of managing different types of services and of positioning services
along the volume-variety diagonal have yet to be fully explored.
The objectives of this paper are two-fold. First, the paper draws on the
service management literature to enhance understanding of the key operational
differences in managing professional services, at one extreme, and mass
services, at the other. The contributions of many authors in both service
marketing and operations are drawn together, developed and integrated into
the service process model. This yields an understanding of the contingencies
which render the design, control and improvement of different service
processes appropriate.
IJOPM
19,4
400
Second, the strategic implications of the service process model are
considered. Extending the analogy between the manufacturing and service
process models further, it is contended that services must be positioned along
the volume-variety diagonal if they are to be cost effective. It is proposed that
the service process model can be applied as a strategic tool to analyse and
evaluate service positioning strategies.
The service process model
Until the mid-1980s, the assumption had prevailed that the heterogeneity of
services meant that little communication or learning could take place between
different service businesses and so service industries remained ``dominated by
an operations orientation that insists each industry is different'' (Lovelock,
1983). As a result, many services still viewed themselves ``as unique, and
consequently (did) not promote service operations management techniques
with the same vigour as ... the manufacturing sector'' (Schmenner, 1986).
The service management literature of the late 1980s saw a proliferation of
papers by service marketing and operations academics who attempted to
redress this position by proposing service typologies which, they argued, more
appropriately differentiated between the management issues and concerns in
different types of service. As a result of some empirical service research the
author and her colleagues postulated a service process model which integrated
several of these service typologies into a single framework (Silvestro et al.,
1992). Implicit in their model, and analogous to the production process model,
was a proposed correlation between volume and variety.
The service process model integrated and unified what was previously a
disparate set of classification schemes. It was contended that, just as in the
production process model, production volume correlates with a number of other
characteristics of the production process such as product mix and variety,
customer order size, degree of product change accommodated (Hill, 1985), so
the volume of service activity similarly correlates with several service
dimensions: people/equipment focus (Thomas, 1975; Kotler, 1980; Schmenner,
1986) level of customer contact (Chase, 1978), degree of value added in the front
office (Maister and Lovelock, 1982), degree of customisation (Maister and
Lovelock, 1982); degree of front liner discretion (Lovelock, 1983); and product/
process focus (Johnston and Morris, 1985).
However, whereas production volume is the key variable in the production
process model, in the service process model volume is defined as the volume of
customers processed, measured in terms of the numbers of customers
processed per business unit per period. This measure includes customer
business which may or may not require the presence of a customer, so that, in a
bank, for example, the volume of customers processed includes back office as
well as front office transactions.
The service process model, illustrated in Figure 1, postulates three service
archetypes: professional services, service shops and mass services. Just as Hill
(1983) recognises the existence of hybrid manufacturing processes, it was
Volume-variety
diagonal
401
argued that while not all services share all the characteristics of one service
type, most services will predominantly be characterised as either professional,
service shop or mass services.
The paper concluded with the contention that these three types of service
process ``give rise to different management concerns, and that service strategy,
control and performance measurement will differ significantly between the
three''. Indeed many authors in the field of service management have argued
that the way in which service operations are managed is contingent upon
process characteristics which are captured in the service process model. In this
paper these contributions are reviewed, synthesised and developed with a view
to more fully understanding the contingencies of service management which
are implied by these three different types of service. This yields a rich and
detailed profile of the operations management issues pertinent to professional
services, at one extreme, and mass services at the other.
The contingent process characteristics of professional and mass
services
Slack et al. (1995) argue that the three key tasks for the operations manager are
the design of the operation; planning and control; and improvement. These
three key tasks will therefore be taken in turn as we consider ways in which
management of services differ at the two extremes of the volume-variety
diagonal, with professional services at one end and mass services at the other.
High
Medium
Mix
Low
Contact time
Customisation
Discretion
People focus
Front office oriented
Process oriented
Contact time
Customisation
Discretion
People/equipment focus
Front/back office oriented
Product/process oriented
Contact time
Customisation
Discretion
Equipment focus
Back office oriented
Product oriented
Professional
Services
Service
Shops
Mass
Services
Low High
Volume of customers per unit per period
Source: Silvestro
et al,
1992
Figure 1.
The service process
model
IJOPM
19,4
402
Professional services
Design of professional service operations. Murdick et al. (1990) maintains that in
professional services, the customer often actively participates in the process of
defining the service specification, detailing his/her individual requirements;
negotiation of the service specification thus forms part of the service process. A
key challenge for professional services is to be able to adapt to the changing
needs of clients; indeed clients may even change the specification and/or
delivery date during the course of a project (Fitzgerald et al., 1991).
Customers (or clients) of professional services typically build long term
relationships with individual members of staff who have personal
responsibility for their individual customer accounts (Fitzgerald et al., 1991).
This creates opportunities for locking the customer into the service since
switching costs for the customer are often high. The services provided by
corporate banks, management consultants, general practitioners are but a few
examples where it is clear that the service professional typically builds up, over
a number of years, a knowledge and understanding of an individual or
business so that moving custom elsewhere can be costly in financial and/or
personal terms. Relationship marketing (Gronroos, 1994) is clearly highly
relevant to the management of professional services.
Another characteristic of professional services is the fact that customers are
often unable to judge the quality, particularly the competence, of service
professionals. In fact it is often precisely because one is unable to perform a
particular service oneself that it becomes necessary to call upon such services.
Haywood-Farmer and Nollet maintain that this has implications for price-
setting: ``Unlike the many services where low price is an attractive feature, in
professional services clients often equate low fees with low quality'' (Haywood-
Farmer and Nollet, 1991, p. 205).
Despite the frequent inability of customers to evaluate service quality, the
irony is that their evaluations are often critical to the success of a professional
service. Against a backdrop of advertising restrictions, word of mouth referrals
are often the key mechanism for professional services marketing (Haywood-
Farmer and Nollett, 1991).
Although technology, particularly IT, can have a dramatic impact upon the
speed and quality of delivery of some professional services (Haywood-Farmer
and Nollet, 1991, pp. 204-5), being people based, the opportunities for
substituting labour by equipment or technology tend to be more limited than in
mass services. This is due not only to the importance of the personal
relationships which are built up between the employees of professional services
and their clients, but also because:
Professionals are paid not so much for what they do as for what they know: the knowledge,
expertise, judgement, skill, training, experience and creativity brought to bear on their work,
rather than the volume of measurable output (Cowperthwaite, 1978, p. 201)
Planning and control of professional service operations. Since there is likely to
be a high ratio of front office staff to customers, human resource issues
Volume-variety
diagonal
403
therefore tend to dominate the resource management agenda. Key issues of
labour intensive businesses according to Schmenner (1986) are the hiring and
training of staff; management, scheduling and control of the workforce; and
employee welfare.
Voss et al. (1985) draw attention to the fact that professional services are
difficult to reproduce due to the widely differing requirements of customers.
The customised nature of professional services, requiring high discretion by
front line staff in meeting customer requirements, often means that front line
staff are highly qualified, with valuable skills which are difficult to acquire.
Sasser et al. (1978) argue that controlling jobs in customised services is often
highly complex due to the low specificity of tasks, limited repetitive learning
opportunities, and the ``craft-skill specialisation'' making individual work
difficult to pace and standardise. Assignments are often long term and job
completion times tend to be uncertain, variable and difficult to estimate.
Wemmerlov's (1990) concept of organic, as opposed to mechanistic, service
processes applies here.
In such services, managing the career advancement of front-line employees,
generating employee loyalty, and staff retention rates are likely to be key
concerns (Schmenner, 1986). Organisation structures are likely to be flat with
loose rather than rigid control relationships between managers and staff
(Sasser et al., 1978). Mintzberg also comments on this:
When an organisation has to grant considerable discretion in the performance of its work to
experts and professionals ... its system of authority is considerably weakened (Mintzberg,
1983, p. 165).
This has implications for quality control, which, according to Collier (1990) is
less systems-based in professional services:
As professional judgement replaces routine systems and procedures, the employee or service
provider has much more discretion about how to perform the job and handle the service
encounter. Professional service organisations rely more on professional managers ... to
monitor and control service quality themselves than on the organization's systems and
procedures (Collier, 1990).
Whilst tight control may not be exercised on service professionals as they
perform their work, quality audits might, however, be used to ensure that
appropriate professional judgements are being exercised.
The view that the nature of employee empowerment is contingent upon
service context has been made explicit by Bowen and Lawler (1992). Whilst
many of the well-known exponents of TQM appear to advocate empowerment
as being universally appropriate in all operations, they maintain that
empowerment should be exercised differently, depending on the characteristics
of services and the business environments in which they operate.
Empowerment of staff, they maintain, is likely to be effective in highly
customised, personalised services, with long term customer relationships,
IJOPM
19,4
404
involving non-routine, complex processes and employing highly skilled staff
with high growth needs: all of which are characteristic of professional services
as portrayed in this paper.
With labour being the main resource, control of labour costs is likely to be
key and labour productivity will be the key measure of resource utilisation
(Fitzgerald et al., 1991). Costs are often highly traceable in professional services
(Brignall et al., 1991), the price charged to the customer often being based on
the number of labour hours spent on a job, making the use of diary systems to
quantify, document and control resources appropriate.
Capacity is defined primarily in terms of available labour in professional
services. Such services tend to be more flexible in the short term than mass
services, being better able to accommodate changes to the service process and
adjust capacity to meet demand fluctuations (Sasser et al., 1978). Service
flexibility tends to be provided through job scheduling, negotiation of delivery
dates with the customer, multi-skilling, cross training, job rotation and the
transfer of staff between business units (Fitzgerald et al., 1991).
Improvement of professional service operations. Haywood-Farmer and Nollet
(1991) argue that:
Because of advertising restrictions, the very intangible nature of professional work and the
frequently high stakes involved, it is not surprising that referrals by satisfied clients and
other professionals are a major source of new clients. Therefore, it is of utmost importance
that professionals provide excellent services to existing clients as a means of developing a
larger client base (Haywood-Farmer and Nollet, 1991, p. 196).
Thus word of mouth recommendations from existing customers is an
important means of business development in professional services. The high
relative value of individual customer accounts also means that the loss of a
particular account will have a more dramatic effect on the business than
individual customer defection in high volume services. Reducing customer
defection is therefore a key objective for professional services and effective
management of service recovery in the event of a customer expressing
dissatisfaction will be critical.
Reichheld and Sasser (1990), show how in some industries it is usual for the
value and profitability of customer accounts to increase over time, making zero
customer defections a meaningful aim. The authors' discussion is not confined
to professional services, but the high value of customer accounts, combined
with the potential for account growth over a number years, clearly makes
reducing customer defections a particularly important issue for professional
services.
Whilst the service recovery literature has highlighted the importance of
managing service recovery, not only as a means of reducing customer
defections but also in order to drive internal improvement (see, for example,
Hart, 1988; Zemke and Bell, 1989), the literature tends to focus on recovery in
standardised services rather than low volume, customised services. There is
Volume-variety
diagonal
405
scope to develop further understanding of how service recovery should be
implemented in less proceduralised businesses, where the impact of effective
recovery can be even greater.
Hart argues that, whilst the provision of a service guarantee can prove a
powerful source of competitive advantage for services in general, there are a
number of risks associated with implementing explicit guarantees in
professional firms (Hart, 1990b; Hart et al., 1992). Explicit guarantees carry the
danger of making the possibility of failure more visible to the customer,
creating doubts in the customer's mind about the competence and reliability of
the service. Nevertheless, Hart maintains that explicit guarantees can be a
powerful form of differentiation and can enhance the credibility of start-up
professional firms.
A further difficulty in implementing professional service guarantees arises
from the usually high value of customer orders, which mean that the costs of
reimbursing the customer for service failures are often high and may be
difficult to quantify. Liability issues may also be difficult to resolve: one UK
advertising company which considered introducing a guarantee decided
against it since, as one manager put it, ``the guarantee would have sounded
more like a list of disclaimers''. Customer dissatisfaction in professional
services is therefore likely to have to be dealt with on an individual basis,
rather than being written into the terms of a standardised guarantee. However,
when explicit guarantees are inappropriate, implicit guarantees can be effective
drivers of internal improvements and ensure speedy and efficient
implementation of service recovery.
Fitzgerald et al. (1991) maintain that the nature of the customer relationship
in professional services has implications for the measurement of service
quality. They cite investment in staff training, supervision and chargeable
ratios as typical quality measures in professional services; for if there is
inadequate investment in training, insufficient numbers of supervisory staff
and too much time spent on chargeable work, quality is likely to suffer. Formal
quality audits and staff appraisals are also central to the control and
measurement of service quality.
Fitzgerald et al. argue that the methods used in professional services for the
measurement of customer satisfaction tend to be informal, being based on
individual customer interviews and unstructured reports rather than
standardised questionnaires or surveys. Unlike mass services, it is often
feasible to measure the satisfaction of every customer rather than basing the
measurement on samples; and the identification of customer dissatisfaction
may well result in action being taken to recover the service for the individual
customer (Fitzgerald et al., 1991).
Mass services
Design of mass services. Mass service specifications are determined prior to the
customer's participation in the service process; they are built into the service
design, rather than being individually negotiated with each customer during
IJOPM
19,4
406
the service process (Murdick et al., 1990). Mass service processes are essentially
non-varying: although there may be several routes or choices, their availability
is always pre-determined. For example, rail transport systems provide
passengers with a wide variety of routes between many locations, but the
service offered cannot be tailored (at least in the short term) to meet individual
passenger needs. Average response and throughput times are often built into
the service design, so that there is little scope for short term flexibility
(Fitzgerald et al., 1991).
Morris and Johnston (1987) maintain that, given the limited scope for
tailoring the service to meet individual needs, highly standardised services
need to carefully manage customer expectations and invest in customer
training. They recommend the preselection of customers, providing signals so
that only customers whose expectations can be matched by the service delivery
system actually select the service and participate in the process. Explicit
service guarantees represent one way of making service standards visible to
the customer and often provide a powerful means of differentiation (Hart, 1988).
Fitzgerald et al. (1991), argue that the nature of the customer relationship is
essentially different in mass services from professional services. Whilst in
professional services individual customer/staff relationships are often built
long term, in mass services the relationship is often between the customer and
the organisation rather than with an individual. The less personalised
customer/staff interface reduces opportunities to lock the customer into the
service; and customer switching costs are likely to be low. Introducing
mechanisms to incentivise customer loyalty is a key challenge which mass
services, notably supermarket retailers, are becoming increasingly adept at
exploiting.
Schmenner's (1986) characterisation of the key challenges provided by
standardised services, with low levels of interaction between staff and
customer, is relevant to mass services. He maintains that marketing is a key
challenge since there are fewer opportunities to interface and therefore cross-
sell products and services to customers than is typical in high contact,
customised services. Similarly efforts need to be focused on making the service
environment ``warm'', even though there is limited scope for the provision of
individual, personal attention.
Mass services are often equipment-based and therefore offer opportunities
for the substitution of service by equipment or technology. Whilst the
traditional assumption has been that services are ``invariably and
undeviatingly personal, as something performed by individuals for other
individuals'' (Levitt, 1972; Thomas, 1975) maintains that ``the strategic
requirements for (equipment-based) businesses are obviously quite different
from those in which individuals perform services for other individuals''.
Schmenner (1986) argues that in non-labour intensive businesses choice of
plant and equipment, and monitoring and implementing technological
advantages are likely to be key issues.
Volume-variety
diagonal
407
Planning and control of mass service operations. Mass services tend to be
highly reproducible (Voss et al., 1985). Sasser et al. (1978) characterise the
nature of tasks for employees in high volume, standardised services as being
highly specified, well defined, teachable and of known duration. Workers tend
to become proficient in one type of operation and tasks may require staff who
are tolerant of repetition. When demand is stable, units tend to be highly
productive due to the division of labour, specialisation and learning that occurs
with scale.
Collier (1990) argues that, whilst professional services rely far more on
professional judgement, quality control in mass services will be through the
application of standard operating procedures, with relatively rigid, hierarchical
organisation structures. Management inspections are therefore more likely to
be used to ensure adherence to the operating procedures (see for example,
BAA's inspections systems as described by Fitzgerald et al., 1991). Using
Wemmerlov's (1990) terminology, mass services are likely to be mechanistic, as
distinct from organic, implying ``hierarchic control and communication, precise
definition of functional process and, generally, rule-governed operations''.
Bowen and Lawler (1992) similarly argue that ``production-line'' approaches
to the management and control of employees may well be more appropriate
than the rather more fashionable concept of empowerment, so heavily
promoted in the TQM literature. They argue that high volume, short
transaction services, where tasks are routine and lend themselves to
technological substitution, and where employees have relatively low skills with
low growth needs, are likely to be suitable sites for the ``production-line''
management approach. Such an approach is characterised by tight control of
employees and a ``scripted'' customer interface (Tansik, 1990), with a view to
consistent, reliable, fast service and equity in the treatment of customers.
Empowerment in these service contexts, which often employ part-time and
casual staff, may well be too costly to be viable.
In mass services, service variety and choice is often provided to the customer
by providing many options and routes through the service process, rendering
the tracing of costs of providing services to individual customers often
impossible. In mass services, therefore, a high proportion of costs is typically
allocated and the profitability of individual services is often difficult to
ascertain (Brignall et al., 1991). Resource utilisation is likely to be measured
using a number of different ratios, rather than in terms of labour, as tends to be
the case in professional services. Although labour productivity may well be an
important indicator, ratios measuring the utilisation of other resources are also
likely to be used (Fitzgerald et al., 1991).
Capacity tends to be defined in terms of availability of plant, equipment and
facilities and tends to be difficult to change in the short term. Mass services
therefore tend to be less flexible than professional services, not only in terms of
their ability to change the service process, but also in terms of being able to
IJOPM
19,4
408
adjust capacity to meet demand. Level capacity strategies and management of
demand in order to smooth peaks and promote off-peak demand therefore tend
to be typical of the approach to capacity management (Sasser et al., 1978).
Part-time and casual staff may well be used in mass services to increase
flexibility in meeting different levels of demand (Fitzgerald et al., 1991);
whereas in professional services the high skill levels of service providers and
the length of time taken to train staff and bring them up to speed can prohibit
short term recruitment possibilities. However, the opportunities for providing
service flexibility through multi-skilling and job rotation tend to be more
limited than in professional services, since the trade-off with productivity is
costly.
Improvement of mass services. Given the low levels of loyalty which are
likely to characterise mass service customers and the relatively low switching
costs, a major issue for mass services is the design of systems to incentivise
customers to make their complaints known and provide an opportunity for
service recovery. Systems of service recovery are likely to be highly
proceduralised compared to professional services; indeed the service
management literature (see for example, Hart, 1990a; Zemke and Bell, 1989)
provides more specific guidelines for the implementation of service recovery in
mass services than in professional services.
In mass services explicit service guarantees may be used to encourage
customers to complain and thus provide opportunities of recovery, as well as
drive internal improvement (Hart, 1988). Service guarantees also have the
advantage of making service standards visible to both staff and customers, and
help shape customer expectations. They can thus be used to preselect
customers whose requirements may be matched by the service delivery system
(picking up on a point made earlier, Morris and Johnston, 1987). Again, the
implementation of service guarantees is likely to be formal and highly
proceduralised.
Fitzgerald et al. (1991) argue that the measurement of quality tends to be
more routinised and systematic in mass services than in professional services.
Mystery shoppers and management inspections are typical mechanisms for
monitoring quality, using standardised checklists to evaluate service provision
on a routine basis.
The high volume of service transactions may well render the application of
manufacturing quality improvement methods, such as SPC, appropriate as a
means of internal quality measurement. In professional services the
intangibility of the service offering and the low volume and high value nature
of transactions are more likely to limit the application of such techniques.
Similarly the measurement of customer satisfaction is also formal and
structured. Satisfaction will normally be measured on a sample basis and the
identification of customer dissatisfaction is unlikely to result in action being
taken for the individual, but, rather, feeds into service design decision-making
(Fitzgerald et al., 1991).
Volume-variety
diagonal
409
Tables I, II and III summarise the contingencies of design, control and
improvement respectively, in professional and mass services. It is contended
that these are the operations management approaches and techniques which
are appropriate for services at the two extremes of the volume-variety diagonal.
The typology of services proposed in the service process model has now
been developed, on the basis of the service management literature, to yield an
understanding of the contingencies which render different operations
management approaches and techniques appropriate. Haywood-Farmer and
Nollet state, ``Naturally, any taxonomy in a field as vast and diverse as the
service sector will have exceptions''; but minor variations do not necessarily
undermine the taxonomy itself:
In fact, the value of taxonomies is in finding generalizations rather than exceptions. They
make it possible for managers to learn from examples of excellence in other fields normally
outside their realm. They also help managers to position their own businesses more
effectively (Haywood-Farmer and Nollet, 1991, p. 31).
The classification of professional service, service shop and mass service
promises to be a valid and useful vocabulary which facilitates the sharing of
management experiences across industry boundaries, so as to enable inter-
organisational learning and the cross-fertilisation of ideas, management tools
and techniques between service organisations in apparently quite different
industrial sectors. It may thus play the role assumed by the production process
model in the manufacturing literature.
Let us now consider ways in which the service process model may be
usefully applied by service managers to support service positioning decisions
and operations strategy.
The service process model as a diagnostic tool
Pressing further the analogy with its manufacturing counter-part, the service
process model may prove to be a useful diagnostic tool for evaluating the
strategic coherence of service operations, in much the same way as Hill (1985)
advocates the application of the production model. Thus the model could be
applied prescriptively.
Hayes and Wheelwright (1979a and b) claimed that in order to be cost
effective, manufacturing processes must adhere to the diagonal on the
production process model; the diagonal representing the optimum balance of
volume and variety. Similarly there may be a danger that, as services stray
from the diagonal on the service process model, their operations may become
less cost effective and thus uncompetitive, either in terms of missed
opportunities for standardisation, or in terms of lost business due to over-
standardisation of the service offering. Services positioned to the right of the
diagonal may be over-looking opportunities for standardisation which could
represent significant cost savings and facilitate the adoption of cost leadership
strategies. By contrast, companies located too far to the left of the diagonal may
IJOPM
19,4
410
Design Professional services Sources Mass services
Service
specification
Customer participates in process of service
specification
Murdick
et al., 1990
Service specification decided before customers enter the
process
Flexibility in meeting customer requirements and
delivery dates important
Fitzgerald
et al., 1991
Average response and throughput times are often built
into the service design so that there is little scope for
short term flexibility
Customer
expectations
Often poorly defined. Service staff help customers
define requirements and diagnose problems
Morris and
Johnston,1987
Managing customer expectations of the service is
important. Pre-selection of customers may be appropriate
Customers find it difficult to assess quality of
service; particularly competence and reliability
Haywood-
Farmer and
Nollet, 1991
Customer
relationship
Long term relationship between customer and
individual staff. Staff allocated customer accounts
Fitzgerald et
al., 1991
Relationship between customer and organisation
High switching costs create opportunities for
customer loyalty. Relationship marketing an
important tool
Proposed in
this paper
Customers often less loyal; locking them into the service
may be difficult. Introducing mechanisms for encouraging
customer loyalty a key challenge
Word of mouth recommendations and referrals
from existing clients important means of marketing
Clients may associate low price with low quality,
creating opportunities for premium pricing
Haywood-
Farmer and
Nollett, 1991;
Schmenner,
1986
Marketing efforts need to be focussed on making the
service ``warm'' given the limited scope for provision of
personal, individual attention
Table I.
The contingencies of
design in professional
and mass services
Volume-variety
diagonal
411
Control Professional services Sources Mass services
Key resources for
control
HRM issues dominate the resource management
agenda. Hire, training, scheduling, career
advancement, retention of staff are key issues
Schmenner, 1986 Equipment and facilities are key areas of
investment
Front office tasks Tasks of low specificity. High and valuable
skills usually required generating high
remuneration and training costs. Limited
repetitive learning opportunities
Sasser et al., 1978 Tasks are highly specified, well defined, teachable
and of known duration. Staff tend to become
proficient in one type of operation. Tasks may be
repetitive, requiring staff who are tolerant of
repetition
Low reproducability of services Voss et al., 1985 Highly reproducible services
Highly empowered front-liners Bowen and Lawler,
1992
Suitable for ``production-line'' management
approach, characterised by tight control of
employees and a ``scripted'' customer interface
Control of jobs Assignments may be long term. Job completion
times often uncertain and variable. Work is
difficult to pace and standardise
Sasser et al., 1978 Highly visible, paced performance. When demand
is stable, units tend to be highly productive due to
division of labour, specialisation and learning that
occurs with scale
Organisational
control
Flat organisation structures likely. Loose rather
than rigid control relationships between
managers and staff
Sasser et al., 1978;
Mintzberg, 1983
Hierarchical structures likely with several layers
of management. Rigid, tight control relationships
likely between management and staff
Organic service processes Wemmerlov, 1990 Mechanisitic service processes
Quality control Professional judgement replaces routine systems.
Reliance on professional managers to monitor and
control service quality themselves, rather than on
the organization's systems and procedures
Collier, 1990 Quality control built into the service through the
application of standard operating procedures
Quality audit applied to assure appropriate
execution of professional judgement
Proposed in this
paper
Management inspection used as a mechanism for
controlling quality
(continued)
Table II.
The contingencies of
control in professional
and mass services
IJOPM
19,4
412
Control Professional services Sources Mass services
Cost control Labour productivity will be the key measure of
utilisation
Fitzgerald et al.,
1991
Productivity will be measured in terms of
utilisation of labour and of other resources
Control of labour costs important, but cost
traceability is relatively easy, diary systems
commonly being used to document labour hours
per job
Brignall et al., 1991 Cost traceability is difficult due to complexity of
routes customers may take through the process.
Profitability of individual services difficult to
ascertain
Capacity
management
Capacity defined in terms of labour hours Sasser et al., 1978 Capacity defined in terms of physical resources,
facility and equipment availability
Services tend to be flexible in adjusting capacity
to meet demand variations.
Sasser et al., 1978 Little short term flexibility in adjusting capacity
Level capacity strategies and management of
demand through pricing and promotion are
common
Sources of
flexibility
Job scheduling. Negotiation of the delivery date
with customers. Multi-skilling. Cross-training
Job rotation. Staff transfer between units
Fitzgerald et al.,
1991
Part-time staff. Casual and temporary staff
Table II.
Volume-variety
diagonal
413
Improvement Professional services Sources Mass services
Service
recovery
Individual customer retention a key concern as the
value of customer accounts is often high and may
well increase over time
Haywood-
Farmer and
Nollett, 1991;
Reichheld and
Sasser, 1990.
Service recovery likely to be customised since the
circumstances of each instance of customer
dissatisfaction are likely differ
Proposed in
this paper
Key issue will be the creation of formal complaint
management systems to signal customer dissatisfation
and create opportunities for recovery. Service recovery
systems likely to be highly proceduralised
Service
guarantees
Explicit guarantees may be a source of differentiation and
enhance the credibility of start-up professional
firms. More generally, an explicit guarantee may shake
customer confidence and heighten awareness of the
possibility of failure
Hart, 1988;
Hart et al.,
1992
Explicit guarantees may be used to help manage
customer expectations and to encourage customers to
provide recovery opportunities
Costs of reimbursing the customer are likely to be high
and issues of liability complex. Customer dissatisfaction
usually has to be dealt with individually rather than being
written into the terms of a guarantee. Implicit guarantees
may still be effective to drive internal improvement
Proposed in
this paper
Guarantees make service standards visible to both
customers and staff; implementation of the guarantee is
highly proceduralised
Internal quality
measurement
Focus is on performance of staff; professional
judgement
Key measures include level of investment in staff training,
supervision and chargeable ratios
Collier, 1990
Fitzgerald et
al., 1991
Focus is on control of the system
Use of mystery shoppers and management inspections
is common, using standardised checklists to evaluate
service provision on a routine basis
Formal quality audits and staff appraisals may be
used to measure internal quality
Proposed in
this paper
Quantitative quality improvement techniques such as
SPC may be applicable
Measurement
of customer
satisfaction
Informal measurement of customer satisfaction based
on individual customer interviews and unstructured
reports. Satisfaction of all customers may be monitored
Identification of dissatisfaction may result in attempts of
service recovery for the individual customer
Fitzgerald et
al., 1991
Formal measurement systems using structured surveys
and checklists. Measurement likely to be sample based.
Identification of dissatisfaction likely to feed into
service design decisions
Table III.
The contingencies of
improvement in
professional and mass
services
IJOPM
19,4
414
be ``over-standardising'' their service offering to the point that customers are
dissatisfied with the level of variety and customisation that is being provided
for them.
Service positioning on the model therefore has far-reaching strategic
implications for service managers. The model can be applied in three different
ways in order to evaluate and analyse service operations strategy. The model
can be used to evaluate possible strategic moves; to analyse and compare a
company's service offering relative to the competition; and to analyse internal
processes with a view to isolating micro-operations which have different
volume-variety characteristics.
Service positioning to evaluate strategic moves
The service process model may be applied in order to evaluate the position of a
service offering along the diagonal with a view to optimising volume and
variety. To illustrate, let us consider a major strategic move made by the UK
travel agency, Lunn Poly, in the mid-1980s (the case study is documented in
Johnston et al., 1993). Although it served relatively high volumes of customers,
it endeavoured to provide a professional and highly customised service across
a wide range of product offerings; staff needed considerable technical
knowledge and training in a range of skills in order to handle the widely
differing enquiries and requirements brought to them by customers.
Transaction times were also highly variable. Thus Lunn Poly's services could
be classified as professional on all dimensions on the ``y'' axis, yet it served
relatively large volumes of customers; so that the company was positioned to
the right of the volume-variety diagonal (see Figure 2).
High
Medium
Mix
Low
Contact time
Customisation
Discretion
People focus
Front office oriented
Process oriented
Contact time
Customisation
Discretion
People/equipment focus
Front/back office oriented
Product/process oriented
Contact time
Customisation
Discretion
Equipment focus
Back office oriented
Product oriented
Professional
Services
Service
Shops
Mass
Services
Low High
Volume of customers per unit per period
Lunn Poly,
early 1980s
Holiday Shop
Concept
Figure 2.
Service positioning to
evaluate strategic moves
Volume-variety
diagonal
415
In 1986 Lunn Poly introduced the ``Holiday Shop'' concept, now a household
name. The new concept meant focusing Lunn Poly's services exclusively on a
particular target market (the inclusive tour market) and standardising its
process and procedures to meet the needs of that particular high volume
market. The commercial division was sold off and any services incompatible
with the new concept were dropped from the product portfolio. The reduced
variability in customer requirements was reflected in shorter and less variable
transaction times. There were opportunities to standardise the customer
process and staff training, and to exploit information technology to improve the
speed and efficiency of transactions.
Lunn Poly's service profile therefore became consistently that of a service
shop (refer to Figure 2). It still catered for high volumes of customers but
contact time, customisation and discretion levels were reduced, the service
became more reliant on technology (equipment focused), although it remained
front-office and process focused. Overall the company's position moved
towards the diagonal and into the service shop category; service provision
became far more cost effective and the company was better able to match its
delivery system with the needs of its target market. Lunn Poly's subsequent
business success in terms of both market share and profitability are well
known (Key Note Report, 1991).
What this case study provides is an illustration of how service performance
and competitiveness can be improved by adhering to the volume-variety
diagonal. It also shows how the service process model can be used to analyse
the strategic implications of moving a service offering up or down, away or
towards the diagonal. It can also be applied in order to analyse competitive
opportunities.
Service positioning to analyse the competitive arena
By mapping the position of different companies within a particular industry or
competitive arena on the model, any gaps in the market may be identified and
exploited. In the catering industry, for example, the success of Bob Paynton's
Chicago Pizza Pie Factory (this case study is documented by Voss et al., 1985)
was not purely due to the innovativeness of the service concept (although this
is undoubtedly Paynton's personal forte); it can also be explained in terms of its
early occupation of a unique position on the service process map.
Whilst in the late 1970s the UK catering industry was composed of either
high class restaurants at the professional end of the diagonal, or fast food
services at the mass end, Chicago Pizza Pie Factory was positioned mid-way as
a service shop (refer to Figure 3). It was characterised by higher quality food,
more variety, longer contact time and more front office orientation than a fast
food outlet. However, it differed from high class restaurants in that contact time
was less (around 45 minutes, rather than two or three hours), there was more
limited product range (deep pan pizzas being the core product), less
customisation, less discretion given to staff, indeed a more scripted interface
altogether. This increased level of standardisation resulted in reduced labour
IJOPM
19,4
416
costs; and the reduced variability in terms of customer requirements meant
higher table turns, less waste and better utilisation. Benihana of Tokyo (a case
study documented by Klug and Sasser, 1972) is an example of exactly the same
strategic move being made in the USA a decade earlier. Service shops, in the
form of themed restaurants, are now commonplace in the catering industry.
To give another example of an industry in which some key players have
made a dramatic strategic move along the diagonal, the 1980s saw a significant
change in the provision of UK optician services. In an industry which
traditionally considered itself a professional service provider, some retail
chains exploited an opportunity to position themselves lower down the
diagonal through the provision of a high volume, more standardised, lower cost
service with less variability in terms of customer processing.
So, using the service process model to map out a competitive arena may well
highlight gaps in the market and stimulate innovative ways of thinking about
managing processes which are usually confined to a particular location on the
model.
Service positioning to restructure internal processes
Finally, the service process model may be used in order to analyse the service
processes within a single organisation. A service organisation may consider
segmenting its market and designing separate processes to handle different
types of service.
The banking industry has witnessed trends in this direction, Barclays Bank
being one of the first to decouple its corporate and retail banking services in the
UK, with its Business Bank concept (case study documented by Fitzgerald et
High
Medium
Mix
Low
Contact time
Customisation
Discretion
People focus
Front office oriented
Process oriented
Contact time
Customisation
Discretion
People/equipment focus
Front/back office oriented
Product/process oriented
Contact time
Customisation
Discretion
Equipment focus
Back office oriented
Product oriented
Professional
Services
Service
Shops
Mass
Services
Low High
Volume of customers per unit per period
Fast food
Restaurant
A la Carte
Restaurant
Chicago Pizza Pie Factory,
Benihana
Figure 3.
Service positioning to
analyse the competitive
arena
Volume-variety
diagonal
417
al., 1990). Banking services can be variously positioned along the diagonal of
the service process model. Corporate loans are professional services with
relatively low volumes of customers, long term customer relationships, highly
tailored service offerings and customer contact with highly skilled
professionals. At the other extreme, ATM and machine room operations are
mass services which are high volume, highly standardised, low contact,
equipment rather than people based and highly automated. Small business
loans and personal banking represent service shops, with medium volume,
customisation, contact time, and staff discretion. Refer to Figure 4.
The separation of service processes along the diagonal facilitates the cost
effective management of different types of operations, providing varying levels
of customisation relative to customer volumes and achieving a match between
the level of personal service provided and that for which customers are
prepared to pay.
It should be noted here that applying the model to analyse micro-operations
within a single organisation implies a change in the level of analysis, and
therefore, in the precise definitions and scales of the axes. In particular, the
volume measure will be defined not, as it was earlier, in terms of ``numbers of
customers processed per business unit per period'', but rather in terms of
``numbers of customers processed per customer processing operation''. If, for
example, the micro-operations of a university business school are mapped out
on the model, some customer processing operations will be classified as
professional services, for example, research supervision may be delivered on a
one-to-one basis and highly customised; whilst at the other extreme a distance
learning course delivered to hundreds of students will be classified as a mass
High
Medium
Mix
Low
Contact time
Customisation
Discretion
People focus
Front office oriented
Process oriented
Contact time
Customisation
Discretion
People/equipment focus
Front/back office oriented
Process/product oriented
Contact time
Customisation
Discretion
Equipment focus
Back office oriented
Product oriented
Professional
Services
Service
Shops
Mass
Services
Low High
Volume of customers per unit per period
Machine Room
Operations
Small Business
Lending
Corporate Lending
Personal banking
ATM Services
Figure 4.
Service positioning to
restructure internal
processes
IJOPM
19,4
418
service; and a programme of lectures to large student audiences, where some
limited interaction between student and lecturer is possible, will be positioned
mid-way as a service shop. Even services traditionally considered to be
professional services may have customer processing activities which vary in
terms of volume and variety and can be differentiated on the service process
model, even though on an industry level analysis the business unit as a whole
would be classified as professional.
Conclusion
This paper has explored the process implications of managing services along
the volume-variety continuum that is implicit in the service process model. The
two archetypes at the extremes of the continuum have been profiled, on the
basis of a review and development of the service management literature
spanning over two decades. Differences in the approaches to design, control
and improvement of services have been considered, and it is proposed that the
adoption of operations management approaches, tools and techniques is
contigent upon process type.
It is also being proposed that the service process model can be used to
evaluate and analyse service operations strategy in three different ways. First,
it can be used to consider the implications of making strategic moves along the
diagonal. Second, it can be used to analyse an industry structure or competitive
arena, with a view to identifying and exploiting gaps in the market. Thirdly, it
can be used to analyse service processes within a single organisation, with a
view to isolating processes which have inherently different volume-variety
characteristics, with a view to managing such processes separately, and cost
effectively.
Further empirical applications of the model will be required in order to fully
test its underlying assumption, which is that the design, control and
improvement of a service process is contingent upon its classification as a
professional service, service shop or mass service. However the early signs are
that the service process model is a promising diagnostic tool which may be
applied in an analogous way to the production model in manufacturing. The
significant implication of both models is that to stray too far from the diagonal
which relates volume and variety, implies increased costs, either in terms of
missed opportunities for standardisation or in terms of customer losses due to
the failure to tailor the service to meet customer requirements.
References
Bowen, D.E. and Lawler III, E.E. (1992), ``The empowerment of service workers: what, why, how
and when'', Sloan Management Review, Vol. 33 No. 3, Spring.
Brignall, T.J., Fitzgerald, L., Johnston, R. and Silvestro, R. (1991), ``Product costing in service
organizations'', Management Accounting Research, Vol. 2, pp. 227-48.
Chase, R.B. (1978), ``Where does the customer fit in a service operation'', Harvard Business
Review, Vol. 56 No. 4, November-December, pp. 137-42.
Volume-variety
diagonal
419
Collier, D. (1990), ``Measuring and managing service quality'', in Bowen, D.E., Chase, R.B.,
Cummings, T.G. and Associates (Eds), Service Management Effectiveness: Balancing
Strategy, Organization and Human Resources, Operations and Marketing, Jossey-Bass
Inc., San Francisco, CA.
Cowperthwaite, G.H. (1978), ``Measuring professional performance'', The Accountant, Vol. 178
No. 5378, February 16.
Fitzgerald, L., Johnston, R., Brignall, T.J., Silvestro, R. and Voss, C. (1991), Performance
Measurement in Service Businesses, CIMA.
Fitzgerald, L., Johnston, R., Silvestro, R., Brignall, T.J. and Voss, C. (1990), Management Control
in Service Industries, CIMA Research Report.
Gronroos, C. (1994), ``From marketing mix to relationship marketing: towards a paradigm shift in
marketing'', Management Decision, Vol. 32 No. 2, pp. 4-19.
Hart, C.W.L. (1988), ``The power of unconditional service guarantees'', Harvard Business Review,
July-August, pp. 54-62.
Hart, C.W.L. (1990a), ``The profitable art of service recovery'', Harvard Business Review, July-
August, pp. 148-56.
Hart, C.W.L. (1990b), ``Designing and implementing service guarantees in professional service
firms, QUIS II Conference Proceedings.
Hart, C.W.L., Schlesinger, L.A. and Maher, D. (1992), ``Guarantees come to professional service
firms'', Sloan Management Review, Vol. 33 No. 3, Spring.
Haywood-Farmer, J. and Nollet, J. (1991), Services Plus: Effective Service Management, G. Morin
Publisher Ltd, Quebec.
Hayes, R.H. and Wheelwright, S.G. (1979a), ``Link manufacturing process and product life
cycles'', Harvard Business Review, January-February.
Hayes, R.H. and Wheelwright, S.G. (1979b), ``The dynamics of process-product life cycles'',
Harvard Business Review, March-April.
Hill, T. (1983), Production/Operations Management, Prentice-Hall International, Englewood
Cliffs, NJ.
Hill, T. (1985), Manufacturing Strategy, Macmillan, London.
Johnston, R. and Morris, B. (1985), ``Monitoring and control in service operations'', International
Journal of Operations and Production Management, Vol. 5, pp. 32-8.
Johnston, R., Chambers, S., Harland, C., Harrison, A. and Slack, N. (1993), Cases in Operations
Management, Pitman Publishing, London.
Key Note Report (1991), A Market Sector Overview: Travel Agents and Tour Overseas Operators,
Key Note Publications, Hampton, London.
Kotler, P. (1980), Principles of Marketing, Prentice-Hall International, Englwood Cliffs, NJ.
Klug, J. and Sasser, W.E. (1972), ``Benihana of Tokyo'', Harvard Business School Case Study 9 673
057.
Levitt, T. (1972), ``Production-line approach to service'', Harvard Business Reveiw, Vol. 50 No. 5,
pp. 41-52.
Lovelock, C.H. (1983), ``Classifying services to gain strategic marketing insights'', Journal of
Marketing, Vol. 47, Summer, pp. 9-20.
Maister, D. and Lovelock, C.H. (1982), ``Managing facilitator services'', Sloan Management
Review, Summer, pp. 19-31.
Mintzberg, H. (1983), Power In and Around Organisations, Prentice-Hall, Englewood Cliffs, NJ.
IJOPM
19,4
420
Morris, B. and Johnston, R. (1987), ``Dealing with inherent variability ± the difference between
service and manufacturing explained'', International Journal of Operations and Production
Management, Vol. 7 No. 4, pp. 13-22.
Murdick, R.G., Render, B. and Russell, R.S. (1990), Service Operations Management, Allyn and
Bacon, Boston, MA.
Reichheld, F.F. and Sasser, W.E. Jr (1990), ``Zero defections: quality comes to services'', Harvard
Business Review, September-October.
Sasser, W.E., Olsen, R.P. and Wyckoff, D.D. (1978, 1982), Management of Service Operations,
Allyn and Bacon, Boston, MA.
Schmenner, R. (1986), ``How can service businesses survive and prosper?'', Sloan Management
Review, Spring, pp. 21-32.
Silvestro, R., Fitzgerald, L., Johnston, R. and Voss, C. (1992), ``Towards a classification of service
processes'', International Journal of Service Industries Management, Vol. 3 No. 3, pp. 62-75.
Slack, N., Chambers, S., Harland, C., Harrison, A. and Johnston, R. (1995), Operations
Management, Pitman Publishing, Marshfield, MA.
Tansik, D.A. (1990), ``Managing human resource issues for high-contact service personnel'', in
Bowen, D.E., Chase, R.B., Cummings, T.G. and Associates (Eds), Service Management
Effectiveness: Balancing Strategy, Organization and Human Resources, Operations and
Marketing, Jossey-Bass Inc., San Francisco, CA.
Thomas, D.R.E. (1975), ``Strategy is different in service businesses'', Harvard Business Review,
Vol. 53 No. 4, July-August, pp. 158-65.
Voss, C., Armistead, C., Morris, B. and Johnston, B. (1985), Operations Management in Service
Industries and the Public Sector, Wiley, London and New York, NY.
Wemmerlov, U. (1990), ``A taxonomy for service professes and its implications for system
design'', International Journal of Service Industry Management, Vol. 1 No. 3.
Zemke, R. and Bell, C.R. (1989), Service Wisdom: Creating and Maintaining the Customer Service
Edge, Lakewood Books, Minneapolis, MN.
