Service Organization Technology

The Trend Toward Lean Services

Service firms have always tended toward providing customized output—that is, providing exactly the service each customer wants and needs. When you visit a hairstylist, you don’t automatically get the same cut the stylist gave the three previous clients.

The stylist cuts your hair the way you request it. Pandora.comOpens in new window, whose mission is “to play only music you love,” provides its 250 million or so registered users with a custom radio channel that broadcasts a set of music that fits their preferences.

Customer expectations of what constitutes good service are rising.

  • Zappos.comOpens in new window provides free shipping on both orders and returns.
  • Amazon.comOpens in new window not only aims to have the lowest price and the fastest delivery, it also helps outside retailers bring their customer service up to par and covers for their service shortcomings if they don’t.
  • Insurance and financial services giant USAAOpens in new window cross-trained its agents and call center representatives so that customers can get answers to their questions about any product or service rather than being switched around from one agent to another.
  • At Montefiore Medical CenterOpens in new window in the Bronx, New York, rather than having specialized medical, surgical, cardiothoracic, and neurosurgical intensive care units (ICUs), Dr. Vladimir Kvetan combined them into a central critical-care department to increase efficiency and improve patient care.

Kvetan, director of critical-care medicine, is continually thinking of ways to provide better care with more efficiency, which means MontefioreOpens in new window rarely encounters the critical-care bottlenecks that many other large hospitals experience.

The expectation for better service is pushing service firms in industries from food service to package delivery to take a lesson from manufacturing. Japan PostOpens in new window, under pressure to cut a $191 million loss on operations, hired Toyota’s Toshihiro Takahashi to help apply the principles of the lean Toyota Production System to the collection, sorting, and delivery of mail.

In all, Takahashi’s team came up with 370 improvements and reduced the post office’s person-hours by 20 percent. The waste reduction is expected to cut costs by around $350 million a year.

Numerous other service firms, in the United States as well as in other countries, have also applied lean principles in recent years.

  • Starbucks CorporationOpens in new window hired a vice president of lean thinking who has been traveling the world with a lean team to work with employees to find ways to cut waste and improve customer service.
  • Panera Bread CompanyOpens in new window is looking for ways to improve sales and profits because long lines at the sandwich chain’s outlets have caused some customers to walk out and inaccurate orders have caused others not to return.
  • Another good example comes from Seattle Children’s HospitalOpens in new window, which applied lessons from manufacturing to increase efficiency and improve patient care.

With the costs of medical care soaring, other healthcare organizations are also taking a continuous improvement approach to cutting costs without sacrificing quality of care.

“In healthcare, you can’t do one big thing and reduce the price,” says Dr. Devi Shetty, who runs a hospital in India that performs open-heart surgery for about 10 percent of the cost charged by hospitals in the United States, “We have to do 1,000 small things.”

Designing the Service Organization

The feature of service technologies with a distinct influence on organizational structure and control systems is the need for technical core employees to be close to the customer.

The differences between service and product organizations necessitated by customer contact are summarized in Figure X-2.

Configuration and Structural Characteristics of Service Organizations Versus Product Organizations Figure X-1 Configuration and Structural Characteristics of Service Organizations Versus Product Organizations | Credit — SlideShare Opens in new window

The impact of customer contact on organization design is reflected in the use of boundary roles and structural disaggregation. Boundary roles are used extensively in manufacturing firms to handle customers and to reduce disruptions for the technical core. They are used less in service firms because a service is intangible and cannot be passed along by boundary spanners, so service customers must interact directly with technical employees, such as doctors or brokers.

A service firm deals in information and intangible outputs and does not need to be large. Its greatest economies are achieved through disaggregation into small units that can be located close to customers.

Stockbrokers, doctor’s clinics, consulting firms, and banks disperse their facilities into regional and local offices. Manufacturing firms, on the other hand, tend to aggregate operations in a single area that has raw materials and an available workforce. A large manufacturing firm can take advantage of economies derived from expensive machinery and long production runs.

Service technology also influences internal organization characteristics used to direct and control the organization. For one thing, the skills of technical core employees typically need to be higher. These employees need enough knowledge and awareness to handle customer problems rather than just enough to perform mechanical tasks.

Employees need social and interpersonal skills as well as technical skills. Because of higher skills and structural dispersion, decision making often tends to be decentralized in service firms, and formalization tends to be low.

Although some service organizations, such as many fast-food chains, have set rules and procedures for customer service, employees in service organizations typically have more freedom and discretion on the job. Managers at Home Depot have learned that how employees are managed has a great deal to do with the success of a service organization.

Managers at Home DepotOpens in new window can use an understanding of the nature of service technology to help them align strategy, structure, and management processes and make the retailer more effective.

Service technologies require structures and systems that are quite different from those for a traditional manufacturing technology. For example, the concept of separating complex tasks into a series of small jobs and exploiting economies of scale is a cornerstone of traditional manufacturing, but researchers have found that applying it to service organizations often does not work so well.

Some service firms have redesigned jobs to separate low- and high- customer-contact activities, with more rules and standardization in the low-contract jobs. High-touch service jobs, like those on the Home Depot sales floor, need more freedom and less control to satisfy customers.

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    Research data for this work have been adapted from the manual:
  1. Organization Theory and Design By Richard L. Daft