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Management of technology in service firms.

INTRODUCTION

Business productivity has been one of the major focus areas of both manufacturing and service industries in the United States for the past two decades. Management of technology plays a key role when productivity enhancement is being considered. The use of high technology can be seen on the factory floor as computer-driven robots replace human labor in an effort to become more "productive." Many manufacturers have discovered that productivity is an elusive target. At a single work station, a robot may improve input efficiency and output effectiveness but the overall factory-level change in productivity may be adversely affected (Goldratt and Cox (1984)). However, planned systematic implementation of technology has proven successful and has increased productivity for manufacturers of products as diverse as motorcycles and disposable razors. In general, the success stories point to the fact that functional disciplines within the organization must learn to cooperate and coordinate their activities.

Historically, the roles of operations and marketing were segmented. Operations was responsible for implementing new technology in the production process. While involved in planning, marketing was focused on selling and delivering the product. Communication between the functional areas was often limited in spite of efforts by product marketing organizational groupings. Today, the dynamics and complexities of the business environment require that departmental barriers be removed and the free exchange of ideas between marketing and operations be encouraged during the planning, implementation and delivery processes. This interaction is mandatory regardless of the type of business. Services offer particular challenges to the management of technology because of the customer involvement in the process, minimal cycle times between deliveries and, in many cases, the smaller organization size of the service provider.

Traditionally, the service sector has been seen to be labor intensive with increases in productivity often focusing on making the worker more efficient. Widespread implementation of electronic cash registers at retail points of sale are a typical example of using technology to automate the process. However, as direct labor costs have escalated, many services have begun to eliminate portions of the human interface by selectively replacing the direct contact with automated equipment. The use of technology in this manner places an increased responsibility on the customer for the actual processing and delivery of the service.

Technology has been used primarily to enhance-efficiency but in the service environment there is a need to maintain and even improve effectiveness on a real-time basis in conjunction with any efficiency changes. For example, when providers require direct user participation in the service delivery process, one criteria for the technology enhancement is that customer use must be virtually foolproof. In order to be effective, implementation of automated services must be easy to use and perform flawlessly in direct contact with users. When the customer is disenchanted with the service delivery system, one choice may be to select alternative delivery mechanisms to the detriment of the service provider and overall business performance. Care must be taken when substituting technology-based automation for people contact.

Technology transfer from manufacturing, computerization and direct customer involvement are three mechanisms previously identified as ways to increase productivity in services (Fitzsimmons and Sullivan (1982)). Considering the basic definition of productivity as the ratio of output to input, in a service operation these factors may be identified respectively as effectiveness and efficiency (Gritzmacher and Haynes (1988)). And assuming that businesses are generally profit-oriented and very interested in productivity enhancement, measurement of these factors becomes an important focus in the management of technology in the service sector.

This paper focuses on the effects of technology implementation by two service provider sectors when direct employee-customer interfaces were replaced with machine-customer alternatives.

Environmental Setting

The data for the study came from a customer survey conducted by a subsidiary of VISA, U.S.A. during the 1980s. At the time, VISA was considering implementing a national debit card product on behalf of the member banks. The primary terminals that were expected to be used were automated teller machines (ATM) and self-service gas pumps (SSG). The goal of the project was to determine customer characteristics that would be useful in formulating marketing programs. While the data is proprietary, the results of the VISA study indicated that SSG was extremely successful but ATMs considerably less so from the customer perspective (Management Engineering Group (1984)). Based on these results and other market factors, VISA today operates the INTERLINK shared debit card network in California and contiguous states wherein customers can access various point-of-sale type terminals for paperless transaction processing.

Energy companies have had a great deal of success with self-service gas stations and many of them offer fully automated pumps with transaction processing capability at the island that eliminates any direct service provider involvement. One of the most successful implementations is the ARCO PayPoint, an electronic funds transfer-based SSG system. A customer using this terminal and a debit card at the pump island incurs a fee of $0.10 per transaction but eliminates any personal contact with station personnel or waiting in line for paper processing. ARCO estimates that nearly 80% of consumer gasoline products were delivered using SSG technology during 1989, whereas less than 10% was pumped by the customer in 1975. Actual usage data on PayPoint transactions has not been released, but ARCO continues to install these terminals in most of their new AM/PM facilities. The demonstrated support of SSG bears testimony to both the efficiency and effectiveness of this particular application of technology throughout the United States.

The banking industry has had less success with ATMs. Most of the nation's 15,000 financial service institutions offer ATM services to their customers either directly or through shared network affiliations. Considering the investment, in excess of five billion dollars for an estimated 85,000 ATMs, the usage has been less than expected by the institutions. Average per account usage is only one ATM transaction compared to 17 checks written monthly (Haynes (1989)). Nationwide, only 33% of retail bank customers frequently use the ATM as a banking service delivery system (Roth and van der Velde (1988)). Noting the wide variation in the two examples presented, the goal of this project was to incorporate theory based models and existing survey data in such a manner that the differences between SSG and ATM usage might be explained. Secondarily, once various factors explaining the success gaps were identified, implications for service managers were formulated based on the lessons learned in evaluating these two service providers.

SERVICE TRANSACTION MODELS

Service management requires an inter-disciplinary approach that incorporates concepts and principles from marketing, operations and human resources (Lovelock (1989)). Based on this premise, three theoretical models were chosen from the literature. The requirements for model selection were that each be well grounded, empirically validated to some extent in prior research and would offer an integrative functional linkage to managing service businesses.

The customer contact model (CCM) focuses on operations as it identifies the potential efficiencies in a service (Chase (1978)). The CCM is popular in service operations management and has been evaluated by several studies (Chase (1981), Fitzsimmons (1985)). The model is simple structurally and features only two variables as shown in Figure 1.

FIGURE 1

POTENTIAL EFFICIENCY = f(a - customer contact time/service creation time)

When service creation time is held to be relatively constant, the model suggests that the less time a customer is in contact with the service provider or delivery system, the greater the potential operational efficiency. The primary limitation of this model is that customer utility or effectiveness is not considered (Schmenner (1986)). A typical service provider would require effectiveness in addition to efficiency when managing the service delivery system. This requirement for direct focus on the customer and need for utility led to the next model selected.

The service quality model (SQM) emphasizes the marketing perspective of service delivery (Berry, Zeithaml and Parasuraman (1985)). The SQM considers a production function conversion process which has the customer enter the service process with an expectation of the "deliverable," experience the service delivery and emerge from the process with a perception of the level of satisfaction. The SQM relationships are shown in Figure 2.

The perceived quality (and utility) is a function of how well the experience satisfies the incoming customer's need. If the experience meets or exceeds the expectation, the quality is high. If the experience does not measure up to the expectation, the perceived quality is low. The marketing function has the responsibility of managing the customer's expectations consistent with what the operations function can actually deliver as an experience. Operations should also understand the marketing implications in order to adequately design the delivery mechanism. The need is for marketing and operations to integrate their planning activities to incorporate the effectiveness and efficiency factors into the delivery system. However, the customer's direct presence in the service delivery system requires that management understand certain behavioral characteristics. The final model selected provides this insight.

The technology acceptance model (TAM) is primarily oriented to individual behavior and has been used to evaluate the implementation of new computer systems in a company setting (Davis, Bagozzi, and Warshaw (1989)). The TAM is somewhat more complex than the prior models as would be expected considering the nature of human behavior. The TAM relationships are shown in Figure 3.

Initial system use is predicated on the user's perception of the ease of use, but continued use is linked to the perceived usefulness of the technology in meeting the user's needs. The external variables could be considered the service facility environment that the provider would like to maintain relatively standardized. Various intermediate relationships can be evaluated including attitudes and intentions but basically, the TAM indicates that the automation must be easy to use plus offer continuing benefits that are consistent with the effort required to use the technology.

MODEL INTEGRATION CONCEPT

Each of the models presented had a unique set of variables and at this stage, combining them into a single composite model was overly complex, but each offered unique insight into productivity. Each model had relationships featuring dependent and independent (predictor) variable(s) that were quantitatively evaluated using the survey data. To summarize by model, measured variables included the following parameters:

1. The customer contact model measures potential efficiency using the variables of customer contact time and service creation time. Efficiency is functionally an operations concern.

2. The service quality model measures customer satisfaction or service quality based on the differential between the two variables of expectation and experience. Satisfaction as defined by this model is functionally a marketing management concern.

3. The technology acceptance model measures actual use as a function of the variables of perceived usefulness and perceived ease of use. Continued use implies that the customer has determined the value/effort exchange is effective in satisfying a particular need. Functionally, effectiveness is a human behavior consideration concerned with both utility and value. These models, therefore, incorporate the three functional areas of operations, marketing and human behavior management and measure factors that are key to understanding productivity and quality issues as applied to the management of services.

RESULTS

The results reflect a quantitative assessment of the data and are classified with respect to the three dependent variables associated with the theoretical models. The CCM variable is EFFICIENCY, the SQM variable is SATISFACTION and the TAM variable is EFFECTIVENESS. Each variable is discussed from the perspective of the data as framed in the context of the measures available in each model. A summary is presented in Table 1.

TABULAR DATA OMITTED

Customer Contact Model

Customer capacity, and rate of throughput were utilized as measures of efficiency when comparing the human interface to an automated system alternative. The ATM data indicated an average processing rate of 48 customers per hour compared to an average processing rate for a human teller of 12 customers per hour. While multiple services were typically available, only cash withdrawal transactions were considered with service creation time assumed constant for ATM and live teller. No consideration was given to the ATM 24-hour availability versus the live teller averaging six hours availability in the sample environment. In spite of this restriction, the ATM has an efficiency potential that is four times greater than the human teller.

The SSG data indicated that a person pumping his/her own fuel takes an average time of 5.5 minutes while a person using a full service pump would experience an average time of 6.2 minutes in the delivery system. The SSG user number reflects an interface with the provider at the time of payment only because there was insufficient data available using an automated pump system that required no human provider interface. Furthermore, the SSG user required nothing more than fuel dispensed, i.e., no other services. Given these restrictions, the SSG demonstrated a throughput (potential efficiency) gain of 13% over provider-pumped fuel dispensing.

Service Quality Model

The satisfaction variable results were derived from direct customer survey information provided by the respective service providers. Bank customers indicated that 57% expected satisfactory performance from the ATM while 93% experienced satisfactory performance. Fuel customers indicated an expectation of 91% and an experience value of 99% by contrast. If satisfaction (service quality) is considered to be the experience compared to the expectation, the ATM had higher quality than the SSG delivery system. However, if actual usage values are used rather than differentials, the SSG appears to outperform the ATM with respect to customer satisfaction.

Technology Acceptance Model

The TAM measured effectiveness using the constructs previously identified. As measured by the VISA data base, the ATM had a perceived usefulness of 30% and a perceived ease of use of 57%. Alternatives to using the ATM include cashing checks at supermarkets or other retailers or actual visits to the bank branch human tellers. These options imply a high degree of service delivery substitution and should be considered when evaluating the actual usage of only 30%.

The SSG had a perceived usefulness of 97% and perceived ease of use of 91%. Actual usage, reported by the providers sampled, was 93% indicating the majority of total gasoline dispensed was delivered using self-service pumps. The cost-per-gallon of SSG-dispensed fuel averaged 15-25% less than full service in the sample environment and this direct cost benefit appears to have a strong impact on the perceived usefulness value. Additionally, the high SSG perceived ease of use should be considered from the perspective of a simple mechanism with which most users have a high degree of familiarity as compared to the more imposing facility and technology involved with the ATM installations.

The prospect of un-controllable factors was recognized in the TAM construct as external variables. No particular remedy has been suggested except to be aware of the contingencies introduced by these environmental externalities and not use the model beyond the application threshold indicated by any specific industry study. Attention to the external factors would be a common caveat when doing research in services because of the heterogeneous nature of the industry as well as provider individuality in a given sector.

ANALYSIS AND IMPLICATIONS

The strategic implications of the results presented with respect to the three theoretical models must be considered from the context of each automated delivery system independently before any generalizations can be proposed.

Automated Teller Machines

Financial institutions were relatively slow in their adoption of ATMs. The pacing of introduction has been attributed to the cost, approximately $50,000/ATM. Initial units in the United States were installed in 1969, but implementation maturity has taken 20 years and represents virtual market saturation in 1991. Customer acceptance has been generally disappointing with only a third of all bank customers using the ATM and even then, monthly usage is minimal. This low activity cannot be attributed to any single factor but several points are generally believed to be critical in ATM acceptance.

1. The technology was new, complex, unproven and expensive. An ATM has seven electromechanical components controlled by a local computer in each machine.

2. The person deciding to buy ATMs was not responsible for implementation in most commercial bank organizations.

3. The operations focus was transaction cost efficiency.

4. The primary contact personnel needed to sell the service to users. Unfortunately, the teller feared replacement by ATMs and was not a strong promoter of the technology.

5. Wide scale implementation was based on competitive issues not proven economic efficiencies or actual customer needs.

6. The customer incentive was convenience. Conceptually, 24-hour banking was desirable but lacked measurability as to the exact value to the user.

7. Customer use required re-education from the prior delivery mechanism. The preference for personal interaction was not adequately evaluated. Use of impersonal machines implied little margin for error to the novice user and the ATM offered little interactive capability for asking questions. The PERCEIVED EASE OF USE was low.

8. Distribution channel options included supermarkets, branch tellers, and other retailers offering, check cashing. The facilitating good, cash, was completely homogeneous. There was no brand loyalty or product differentiation. The PERCEIVED USEFULNESS was also low.

9. Successful technology implementation required additional back-office capabilities that were not available. Specifically, on-line data base networks were necessary but not initially a feature of most ATM systems.

Self-Service Gas

The energy companies historically operated service stations that provided a mix of deliverables including fuel, tires, batteries and accessories plus personalized activities such as window cleaning, fluid level and tire pressure checking. As cars came with more features such as windshield washers, longer life batteries, 40,000-mile tires and required less oil or lubrication service, the advantages of full-service capabilities diminished. The movement to self-service started in the early 1960s as gas prices began to escalate. The gas pump facility did not change while the actual labor costs were reduced directly at the station level. Customers enjoyed the increased speed and convenience of pumping their own gas with the added incentive of lower prices. The provider found that the cost savings were more than capable of offsetting the price reduction to the consumer. By contrast to ATMs, SSG exhibited several immediate benefits to users.

1. The delivery site and mechanism remained the same.

2. The technology did not change and the costs to involve the customer were negligible, often only a sign with prices.

3. Customer education requirements were minimal. The actual pumping process was well-known and accepted so PERCEIVED EASE OF USE was high.

4. There were immediate labor cost reductions with many stations moving from five or six attendants to one or two cashiers.

5. Margins were such that customer price incentives could be offered immediately and prominently displayed. Today, these can amount to nearly a $0.40 per gallon differential between self-service and full service in certain areas. The PERCEIVED USEFULNESS was quite high.

6. Wide scale adoption was based on demonstrated cost benefits. The nature of station management implied that the person choosing the SSG alternative was also responsible lot the implementation.

7. Computer automated pumps were implemented only after years of successful SSG experience with older equipment. The consumer use was not dependent on computerized processes.

8. Customers perceived a degree of product differentiation and brand loyalty. There were no alternative channels, gas could only be bought at a "service station."

9. The facilitating good was actually consumed with little potential for inventorying beyond the tank capacity. Repeat visits to the delivery site were common and expected by user. (While the same is somewhat true of ATMs, credit cards and checks offer alternative payment methods to actual cash.)

Analysis

The SSG automation implementation strategy was quite different from the banking industry orientation. The rationale for selecting the technology was very quantitative, based on actual cost-benefits rather than customer convenience. Each SSG user could demonstrate immediate cost savings that contributed to station efficiencies while the banks had to recuperate the capitalization costs associated with ATM installation with little actual cost savings for either the bank or customer.

Qualitatively, the customer satisfaction level ("quality") was immediately higher for SSG because the perceived value was closely associated with lower cost. The banks did not offer any such price incentive to ATM users and, in some cases, actually created a price penalty through a service charge.

IMPLICATIONS

Based on the results of the review of the SSG and ATM implementations, some generalizations are possible when considering management of technology relative to automating services. While the specific nature of the service, organization size and competitive orientation would define the relative degree of marketing and operations functional coordination required, eight common elements should be considered.

1. Define the input/output productivity factors for the service. Particular attention should be given to the efficiency versus effectiveness components.

2. Define potential incentives to increase customer acceptance, this will create PERCEIVED USEFULNESS of the service.

3. Identify and evaluate actual service delivery costs.

4. Limit the use of untested, leading edge technology.

5. Minimize re-education requirements for customers and employees. Both #4 and #5 link to the EASE OF USE factor.

6. Identify common purpose in the organization to focus the functional area resources towards a singular goal.

7. Match tactical capabilities and strategic goals to known market demand and customer needs.

8. Effective service delivery is an antecedent to efficiency. The customer needs must be met before efficiency can play a role in increasing productivity.

SUMMARY

The proliferation of services in the United States requires that business be more systematic in the evaluation of service management. This study demonstrated how the implementation of technology plays a key role in the customer's acceptance of an automated service delivery system. While technology in manufacturing has been used to automate the existing process, technology in services can be used to change the process itself. In the implementation, failure to consider a customer's presence in the service system can be critical. Technology must be made simple and relatively foolproof because the user is often untrained and susceptible to mistakes. Management of technology in this environment requires a greater awareness of the customer needs with respect to organizational capabilities, thus a cross-functional orientation is necessary to succeed.

Theoretical models can offer some insight into why certain approaches/techniques/tools operate in the manner prescribed and when used in the context of their limited domains, may help place the management of technology in services on a more structured basis. The intangibilities of many service productivity issues seem to require a reexamination of the basics and particular attention to the underlying objectives and constraints.

America's current competitive advantage in services must be nourished if we are to remain in the leadership position. When one of the primary areas of service differentiation, personalized attention, is replaced with computerized equipment, the implementation of technology may have to focus on cost reduction. The magnitude of this reduction must ensure that a portion of the marginal savings can be passed on to the customer in order to offset the value placed on personal interaction. Any alternative service delivery mechanism should be translatable into some economic differentiation to the customer that can be seen as an incentive to utilize the alternate system regardless of the technology.

Future research should evaluate other service industry automated delivery systems with respect to the factors presented in the three theoretical models. Other theories and paradigms should be considered as the field of service management continues to evolve. Health care, transportation, the education system and public services offer unique research opportunities that appear to need attention in both efficiency and effectiveness areas.

REFERENCES

Berry, L.L., V.A. Zeithaml, and A. Parasuraman. "Quality Counts in Services, Too." Business Horizons, May-June 1985, 44-52.

Chase, R.B. "Where Does the Customer Fit in the Service Operation?" Harvard Business Review, vol. 56, no. 6, November 1978, 132-142.

Chase, R.B. "The Customer Contact Approach to Services: Theoretical Bases and Practical Extensions." Operations Research, July-August 1981, 698-706.

Davis, F.D., R.P. Bagozzi, and P.R. Warshaw. "User Acceptance of Computer Technology: A Comparison of Two Theoretical Models." Management Science, vol. 35, no. 8. August 1989, 982-1003.

Fitzsimmons, J. A., and R.S. Sullivan. Service Operations Management. New York: McGraw-Hill, 1982.

Fitzsimmons, J.A. "Consumer Participation and Productivity in Service Operations." Interfaces, vol. 15, 1985, 60-67.

Goldratt, E., and A. Cox. The Goal. New York; North River Press, 1984.

Gritzmacher, K.G., and R.M. Haynes "Comparing Productivity between Services and Manufacturing: A Field Test." Productivity Management Frontiers II. Geneva: Inderscience, Ltd., 1989.

Haynes, R.M. The Effect of ATM Usage on Customer Account Balances. Monograph. Arizona State University: First Interstate Center for Services Marketing, 1989.

Management Engineering Group. The EFT Switch. Phoenix, AZ: Management Engineering Group, 1984.

Roth, A., and M. van der Velde. The Future of Retail Banking Delivery Systems. Rolling Hills, IL: BAI Publications, 1988.

Schmenner, R.W. "How Can Service Businesses Survive and Prosper." Sloan Management Review. Spring 1986, 21-32.
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Title Annotation:Special Issue on Linking Formulation in Marketing and Operations: Empirical Research
Author:Haynes, Ray M.; Thies, Emil A.
Publication:Journal of Operations Management
Date:Jul 1, 1991
Words:4132
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