Core Organization Technology

Core Organization Technology for Service Firms

Another big chance occurring in the technology of organization is the growing service sector. More than half of all businesses in the United States are service organizations, and according to one estimate nearly 90 percent of the U.S. workforce is employed in services, such as restaurants, hospitals, hotels, and resorts, airlines, retail, financial services, and information services.

Definition of Service Firms

Service technologies are different from manufacturing technologies and, in turn, require a different organization design.

Studies of service organizations have focused on the unique dimensions of service technologies. The characteristics of service technology are compared to those of manufacturing technology in Figure X-1.

Figure X-1 Differences between Manufacturing and Service Technologies | Credit — Slideplayer Opens in new window

The most obvious difference is that service technology produces an intangible output, such as social networking provided by Facebook, rather than a tangible product, such as a refrigerator produced by General Electric. A service is abstract and often consists of knowledge and ideas rather than a physical product. Thus, whereas manufacturers’ products can be inventoried for later sale, services are characterized by simultaneous production and consumption. A client meets with a doctor or attorney, for example, and students and teachers come together in the classroom or over the Internet. A service is an intangible product that does not exist until it is required by the customer. It cannot be stored, inventoried, or viewed as a finished good. If a service is not consumed immediately upon production, it disappears. This typical means that service firms are labor and knowledge intensive, with many employees needed to meet the needs of customers, whereas manufacturing firms tend to be capital intensive, relying on mass production, continuous process, and smart manufacturing technologies.

Direct interaction between customer and employee is generally very high with services, while there is little direct interaction between customers and employees in the technical core of a manufacturing firm. This direct interaction means that the human element (employees) becomes extremely important in service firms. Whereas most people never meet the workers who manufactured their cars, they interact directly with the salesperson who sells them a new truck or the Avis associate who rents them a car while on vacation. The treatment received from the salesperson—or from a doctor, lawyer, or hairstylist—affects the perception of the service received and the customer’s level of satisfaction. The quality of a service is perceived and cannot be directly measured and compared in the same way that the quality of a tangible product can. Another characteristics that affects customer satisfaction and perception of quality service is rapid response time. A service must be provided when the customer wants and needs it. When you take a friend to dinner, you want to be seated and served in a timely manner; you would not be very satisfied if the hostess or manager told you to come back tomorrow when there would be more tables or servers available to accommodate you.

The final defining characteristic of service technology is that sit selection is often much more important here than with manufacturing. Because services are intangible, they have to be located where the customer wants to be served. Services are dispersed and located geographically close to customers. For example, fast food franchises usually disperse their facilities into local stores. Most towns of even moderate size today have two or more McDonald’s restaurants rather than one large one, for example, in order to provide service where customers want and need it.

In reality, it is difficult to find organizations that reflect 100 percent service or 100 percent manufacturing characteristics. Some service firms take on characteristics of manufactures, and vice versa. Many manufacturing firms are placing a greater emphasis on customer service to differentiate themselves and be more competitive. In addition, manufacturing organizations have departments such as purchasing, human resources, and marketing that are based on service technology. On the other hand, organizations such as gas stations, stockbrokers, retail stores, and restaurants belong to the service sector, but the provision of a product is a significant part of the transaction. The vast majority of organizations can be classified along a continuum that includes both manufacturing and service characteristics, as illustrated in Figure X-1.

AT AAM, Opens in new window the core technology AAM, the core technology begins with raw materials (e.g., steel, aluminum, and composite metals).

Employees take action on the raw material to make a change in it (e.g., they cut and forge metals and assemble parts), thus transforming the raw materials into the output of the organization (e.g., axles, drive shafts, crankshafts, and transmission parts).

For a service organization like UPS, the core technology includes the production equipment (e.g., sorting machines, package handling equipment, trucks, and airplanes) and procedures for delivering packages and overnight mail. In addition, as at companies like UPS and AAM, computers and digital information technology have revolutionized work processes in both manufacturing and service organizations.

Figure X-1 features an example of core technology for a manufacturing plant. Note how the core technology consists of raw material inputs, a transformation work process (e.g., milling, inspection, assembly) that changes and adds value to the raw material and produces the ultimate product or service output that is sold to consumers in the environment.

In today’s large, complex organizations, core work processes vary widely and sometimes can be hard to pinpoint.

A core technology can be partly understood by examining the raw materials flowing into the organization, the variability of work activities, the degree to which the production process is mechanized, the extent to which one task depends on another in the workflow, or the number of new product or service outputs.

Organizations Opens in new window are also made up of many departments, each of which may use a different work process (technology) to provide a good or service within the organization.

Thus, R&D transforms ideas into new products, and marketing transforms inventory into sales, each using a somewhat different work process. The output of the HR department is people to work in the organization, and accounting produces accurate statements about the organization’s financial condition.