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New developments in service operations management.

Declining consumer satisfaction and increasing foreign competition have forced the service industry to improve quality to remain competitive. Improving the quality of service performance takes several steps. The first step is to identify and understand the characteristics that make controlling service quality so difficult. The next step is to improve the service system. This entails drawing a flowchart of the complete service process and eliminating fail points. Once the service system is perfected, the last step is management's involvement in eliminating flaws in service performance.

The service industry is the largest and fastest growing segment of the U.S.' business sector. It accounts for more than 68 percent of the GNP and 71 percent of its employment. The ability of the U.S.' service industry to remain competitive and profitable will have major effects on the trade deficit as well as the whole economy. With this in mind the following two points are very disheartening: Most consumers are dissatisfied with the quality of services offered in the U.S.; and there is an increasing amount of foreign competition entering the U.S. service sector.

In the last two decades there have been many articles written on the need for U.S. manufacturers to improve product quality in order to compete with foreign manufacturers. Most of the quality improvement methods developed and discussed were designed specifically for manufacturing firms. As a result the manufacturing industry in the U.S. has made serious efforts to refocus attention on quality, making it the number one priority. The service industry, on the other hand, has been virtually ignored. While the manufacturing industry has made changes in their manufacturing systems to improve product quality, there has been very little mention of similar improvements in the service industry.

Surveys reveal that consumers are dissatisfied with the quality of services offered in the U.S. The Yankelovich Monitor, an annual survey of 2,500 consumers, tested consumer satisfaction in seven service industries. The results of the test showed that only supermarkets showed signs of improvement in consumer's perceived quality. Restaurants, hotels and department stores remained the same, while airlines, banks and cable TV operators dropped. The results of this survey suggest that the service industry in the U.S. has become complacent.

Previous to the 1980s there was much less foreign investment in the service industry, which meant the U.S. service sector did not have to contend with intense international competition. However, the service industry's market environment is changing. James B. Quinn and Christopher E. Gagnon offer that, "It is no small matter that net positive trade balances in services have fallen steadily since the beginning of the decade, from $41 billion in 1981 to $21.4 billion in 1985. Of the total, business services declined more than $9.3 billion between 1981 and 1985, when the net balance was a meager $2 million. The most serious losses have occurred in the travel and transportation-related industries. Although U.S. airlines have maintained a steady 38 percent to 40 percent of the world's revenue passenger miles during the past decade, its once powerful international carriers, Pan Am and TWA, have fared poorly at the hands of foreign competitors like Swissair and JAL, which have made heavy long-term investments in their fleets and paid close attention to the quality of care given passengers."

The increased foreign investment in the service industry means service firms will have to find new ways to remain competitive. Improving service quality is the first step.

Service performance: difficult to control

The majority of service firms find it too costly and difficult to control and improve service quality. This is true even though studies reveal that a consumer's belief that quality exists in a product or service has a major affect on profitability.

Bro Uttal has said that, "Profit impact of market strategy, or PIMS, research shows that financial performance is tied directly to the perceived quality of a company's goods and services." This information reveals that improving quality can give a company a competitive advantage and increase profitability.

In the manufacturing industry there are several ways to measure and control the quality of a product. Statistical quality control methods allow quality to be built into the product during the production phase by using statistical sampling for feedback. When manufacturing a product, workers have several phases of production to examine and measure the quality of the item being produced. This is not true for services. Unlike a product it is not possible to measure, test and verify the accuracy of a service in advance of sale to ensure quality. Three characteristics of services that seem to sum up why services are difficult to control are intangibility, heterogeneity and inseparability.

A service is an intangible performance. This means a physical product that can be continually evaluated for quality does not exist. Service quality is judged by the speed, courtesy and competence of the service performance. It is difficult to control these intangible aspects of service performance because they are very subjective. Each customer will have a different set of values and expectations that will be used to judge service performance. There are some aspects of a service that are tangible, such as the checks a customer receives when opening a checking account at a bank or the parts that a service repair man uses to fix an appliance. However, when rating quality, tangible aspects are not as important as the intangible aspects of service performance.

Another characteristic of services is heterogeneity. It refers to how consistently a service is performed. Services are heterogeneous as a result of being high labor intensive performances. It is difficult to control the type of exchange that will take place between two or more people, and it is usually during this encounter that quality is perceived by the customer. A service for the most part is unpredictable. Each situation presents different possible outcomes, depending on the needs and expectations of the customer and the knowledge and competency of the provider.

The last characteristic is inseparability. A service is inseparable because it takes place while the customer is present. It is not possible to produce a service and present it to a customer at a later date. The most important aspect of this characteristic is that quality occurs, or is judged, during the service delivery. As a result of inseparability, it is important to perform the service right the first time. This particular experience will influence how the customer will judge the quality of the entire firm. These three characteristics are intrinsic to services and describe the reasons why a service is difficult to control.

The blueprint method

The first step to improve service quality is to improve the service system. One method offered to improve the service system is the blueprint method. G. Lynn Shostack states that the underlying cause of failure in service companies is the "lack of a systematic method for design and control." She mentions that although work flow design and control methods such as time-motion engineering, PERT/GANTT charting and quality control techniques are important, they miss an important aspect of services -- the customers' interaction with the service. "They make no provision for people-rendered services that require judgment and a less mechanical approach." Shostack suggests the concept of a blueprint to resolve these problems.

The first step when designing a blueprint is to map out the complete service process. This is in the form of a flow chart. In this step it is important to distinguish between processes that are seen by the customer and the ones that are unseen. Shostack states that even though customers do not actually experience directly some aspects of a service (e.g., the type of computer system used), this aspect can indirectly affect customers' quality perception. For instance, if the reports generated by this new computer system are more difficult for the customer to read, then this will have a negative impact on service quality. The type of computer used is considered a subprocess but is very important to the overall success of the service.

The second step in the blueprint design is to isolate fail points. A fail point is any time during the service process that the provider has the opportunity to make a serious mistake that will materially alter the customer's perception of quality. By highlighting these critical areas of the service process, it is possible to design fail-safe processes into the system. It is important to perform the service right the first time and eliminate potential customer irritation. It is felt that evaluation of fail points prior to serving the customer will help resolve and eliminate potential problems.

Establishing the time frame in which the service should take place is one of the most important and difficult aspects of the blueprint. It is important to develop time frames because length of time has the highest impact on service cost. The more complex the service the harder it is to determine a time frame. The first step is to develop a standard time it takes to complete the service when all aspects of the service are normal. Next, develop time frames for different deviations from the normal case study. An important point to consider from the customers' perspective is that most services have an acceptable time frame for completion. Perceived quality is diminished when service performance extends beyond this acceptable time frame.

The next step is to analyze profitability. This is accomplished by quantifying the effect different time delays have on profitability. There are generally alternative methods of performing a service to increase efficiency. Standardizing tasks and using technology are ways to speed up service delivery. However, it is necessary to weigh the cost benefits of speeding up the service with the possible negative affect a faster method might have on perceived quality. For example, if customers think a computerized phone answering service is impersonal and get frustrated using it, the increased efficiency and lower costs might not outweigh the negative effects on perceived quality. The objective is to increase efficiency while not detracting from the customer's perceived quality.

The final point to consider involves making the final quality improvements. This means choosing the best products to use in the tangible aspects of the service (i.e., parts and equipment).

The concept behind the blueprint method is to improve the systems in which the service is performed. However, improving the service system is the first step to improving service quality. A firm can have an excellent service system, but if it does not offer services the customers wants, then it will not succeed. In conjunction with improving the service system, top management must take steps to eliminate four common gaps made in service performance.

The four gaps

The following information helps service providers improve service quality by understanding and avoiding four gaps made in service delivery. The authors performed an in-depth study, which included surveying several layers of management from a variety of nationally recognized organizations within a category of four major service industries. The study entailed asking open-ended questions regarding a broad range of service quality issues. The research turned up four areas of concern, which are referred to as gaps in service, that negatively affect the customer's perception of quality. The intent of this study was to clarify the most common misconceptions made by a service provider. Understanding and clarifying the service quality gaps will enable service organizations to make needed quality improvements to become more competitive.

The first gap addresses the difference between consumer expectations and management perceptions of consumer expectations. The study revealed that top executives very often do not understand what Zeithaml, Berry and Parasuraman define as "what features connote high quality to consumers, what attributes a service must have in order to meet consumer needs, and what levels of performance on those features are necessary to deliver high quality service." The major reason given for this lack of knowledge is poor market research. It is stated that service industries put more emphasis on operations and this "divert focus from consumers and reduces efforts to understand their needs and expectations."

In addition to increasing market research, another way to increase focus on the customer is for top management to get closer to the customer. This can be accomplished by periodically interacting with the customer or communicating directly with the customer-contact employee. Zeithaml et al comment that "As the degree of contact between top managers and consumers increases, top managers should understand the consumer better and the size of the gap should decrease."

The second gap is management's perception of service quality and the inability to set proper service specifications. This area involves the ability of management to set high enough standards to meet the customer's quality expectations. The major obstacle to meeting customer quality expectations is

management's emphasis on short-term profitability and cost reduction techniques. The methods suggested to resolve this problem are setting formal goals and standardizing tasks. It is necessary that managers set goals and make a commitment to increase quality of performance. This can be in the form of stating which quality aspects should be stressed and making the necessary changes to accomplish these goals. Since it is not possible to be the best in all areas of quality performance, management should select a few quality characteristics unique from competitors and excel in these areas. For example, the major goals McDonald's fast-food franchises are committed to offering their customers are fast service, consistent product and low price.

The second part of goal setting is developing a way to monitor the performance of the workers in achieving these goals. McDonald's sets strict guidelines for food preparation and customer service. Management continually measures employee's performance in each of these areas by close observation and inspection. It cannot be over-emphasized that these techniques to improve service quality require management's complete commitment.

The third gap is the difference between the worker's actual performance compared to the standards set by management. This gap exists because the worker either cannot or will not perform to standards. Zeithaml et al claims that "The main theoretical constructs proposed to account for the size of gap three are teamwork, employee-job fit, technology-job fit, perceived control, supervisory control systems, role conflict and role ambiguity." This gap is the result of placing workers in the wrong type of position or one that does not suit their particular skills. Zeithaml et al also assert that the exploratory study indicated that service quality problems often occur because contact personnel are not well suited to their positions. Because customer-contact jobs tend to be situated at the lower levels of company organization charts (e.g., car rental agents, telephone operators and repair technicians), personnel holding these jobs are frequently among the least educated and lowest paid employees in their companies. As a result, they may lack language, interpersonal or other skills to serve the customer effectively.

Employees have problems meeting set standards when they feel there are too many rules restricting decision making, or his/her control over a situation. If an employee has freedom to make important decisions while serving a customer, the employee has higher perceived control of the situation. This means that too many rules and guidelines can place excessive stress on the employee.

Another problem exists if an employee perceives performance measurements to be too strict or not equitable. This will inhibit performance. An example of this is when an employee is measured exclusively on quantity and this measurement system does not consider customer service aspects as well. Role conflict results when an employee's superiors expect workers to perform jobs that are not within their job classification. For instance, management placing pressure on clerical employees to make a sales pitch to every customer they serve, in addition to normal services offered, can conflict with the employees job goals of serving the customer.

Lastly, Zeithaml et al say that role ambiguity occurs when "employees are uncertain about what managers or supervisors expect from them and how to satisfy those expectations or because they do not know how their performance will be evaluated and rewarded."

There is an incredible amount of responsibility placed in the hands of customer-contact employees. From the consumer's perspective, very often it is the contact employee that represents the entire company. Improving the placement and training of customer-contact employees is essential. In addition, management should offer incentive programs to reward excellent performance.

The fourth gap is concerned with the difference between service delivery and external communication. A major service error is promising unrealistic performance. Often marketing departments will advertise a service before discussing the concept with the contact personnel. This lack of communication can cause the company to make promises it cannot keep, thus damaging credibility with consumers. To avoid this situation departments need to talk to each other.

Some service firms have focused on quality, making it a top priority. American Express, Federal Express and McDonald's are industry leaders that understand that quality is one of the most important aspects for a successful business. American Express uses sophisticated equipment that standardizes tasks and increases efficiency in conjunction with a wide variety of programs designed to recognize and reward workers who take extra steps to offer customers special service. Unfortunately, this type of dedication to quality does not seem to be the trend in the service industry.

Management must follow the example set by the top service performers and become as committed to improving quality. Understanding the three characteristics that make controlling service quality difficult is the first step. Implementing work designs that improve service systems and the control of service performance is the next logical step toward increasing quality. Finally, eliminating the four gaps in service performance will increase management's ability to effectively and efficiently serve their customers. By making these simple changes, management would be taking a pro-active rather than a reactive stance on quality improvement. It could be the difference between merely surviving or becoming an industry leader.

Mary A. Tinkham is the senior financial analyst for entertainment, finance division, at Disneyland in Garden Grove, Calif. Brian H. Kleiner is a professor of management at California State University, Fullerton, where he was the 1992 finalist for the outstanding professor award in the school of business. Kleiner is also a consultant to organizations for the implementation of self-governing work groups.

For further reading

Parasuraman, A., Valarie A. Zeithaml, and Leonard L. Berry, "Conceptual Model of Service Quality and Its Implications for Future Research," Journal of Marketing, Fall 1985.

Quinn, James B. and Christopher E. Gagnon, "Will Services Follow Manufacturers Into Decline," Harvard Business Review, November/December 1986.

Shostack, G. Lynn, "Designing Services That Deliver," Harvard Business Review, January/February 1984.

Uttal, Bro, "Companies That Serve You Best,'' Fortune, December 7, 1987.

Zeithaml, Valarie A., Leonard L. Berry and A. Parasuraman, "Communication and Control Processes in the Delivery of Service Quality," Journal of Marketing, April 1988.
COPYRIGHT 1992 Institute of Industrial Engineers, Inc. (IIE)
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Title Annotation:US Competitiveness
Author:Tinkham, Mary A.; Kleiner, Brian H.
Publication:Industrial Management
Date:Nov 1, 1992
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