ASSESSMENT AND DESIGN OF SERVICE SYSTEMS:FUNDAMENTALS OF SERVICE MANAGEMENT

FUNDAMENTALS OF SERVICE MANAGEMENT

Differences between Services and Material Goods

Are services essentially different from material goods? Once service management had been addressed by several scientific disciplines, a considerable amount of research effort was spent on this question. The service marketing literature, in particular, provides an ample variety of theoretical arguments and examples from various industries that underscore the distinction between services and material goods (for an overview, see Fisk et al. 1993). Meanwhile, this distinction becomes more and more blurred. Almost any product can be seen as a combination of material goods and services, and thus the notion of hybrid products (i.e., bundles of material goods and services) has become widely accepted (Stanke and Ganz 1996).

However, three properties of services are assumed to be fundamental:

• Intangibility: Unlike material goods, services normally do not exist physically. They consist of concepts and activities fulfilling a value proposition given to the customer.

• Simultaneity of production and consumption: Generally speaking, services are delivered at the time the customer needs them and to the location where they are needed. Therefore they can hardly be stored and shipped. This property is usually labeled the ‘‘uno-actu-principle.’’

• Customer integration: In most cases, the customer is integrated in a service delivery process, either personally as an object of the service or by providing his or her property or information as input.

Counterexamples can be easily found at least for the first two properties, intangibility and uno- actu-principle. The last distinction, the involvement of the customer in the service delivery process, appears to be more fundamental. Some authors even label it the only valid difference between services and goods: ‘‘With services, the customer provides significant inputs into the production process. With manufacturing, groups of customers may contribute ideas to the design of the product, however, individual customers’ only part in the actual process is to select and consume the output’’ (Sampson 1999).

Although the relevance of each of these basic properties varies considerably between different types of services, they indicate some basic challenges that must be met in managing almost any service:

• Definition and description of an intangible product: Because product properties are mostly immaterial, describing and—even more important—demonstrating them to the customer is much more difficult than with material goods. In most cases, the customer does not have an oppor- tunity to look at or to test the service prior to purchase, as can be done with a car, for example. Therefore, buying a service creates a certain extent of risk for the customer. The challenge for a marketing department consists at this point of communicating the service’s characteristics to the customer and reducing this feeling of risk as much as possible. For a development or an

operations department the challenge lies in defining and describing the service product in a way that ensures its delivery without failure.

• Managing resources in terms of quantity and quality: Most services cannot be produced ‘‘on stock,’’ which requires that the service provider keep capacity available, whether the service is purchased or not. For this reason, concepts such as yield management are extremely important in numerous service industries, such as the airline industry.

• Managing the customer as a part of the service that can be controlled in an indirect manner at most. In many cases, proper service delivery depends on the customer behaving and cooperating in a certain way. Therefore, a service provider has to find ways to ensure that the customer assumes his or her role in the process.

Definitions and Terminology

According to ISO 9004 / 2, services are ‘‘the results generated by activities at the interface between the supplier and the customer and by supplier internal activities to meet customer needs.’’ The fol- lowing notes are added to this definition:

• ‘‘The supplier or the customer may be represented at the interface by personnel or equipment.’’

• ‘‘Customer activities at the interface with the supplier may be essential to the service delivery.’’

• ‘‘Delivery or use of tangible product may form part of the service delivery.’’

• ‘‘A service may be linked with the manufacture and supply of tangible product.’’

The standard provides a rather general definition that contains various essential aspects. For purposes of service management, the definition needs to be refined. This can be done by analyzing the most common definitions of the services concept, the most widely accepted of which was originally es- tablished by Donabedian (1980). It states that a service bears three distinct dimensions:

1. A structure dimension (the structure or potential determines the ability and willingness to deliver the service in question)

2. A process dimension (the service is performed on or with the external factors integrated in the processes)

3. An outcome dimension (the outcome of the service has certain material and immaterial con- sequences for the external factors)

Combining the aspects that are considered in the standard with Donabedian’s dimensions of service yields Figure 1.

Service Typologies

Most approaches to defining services aim at giving an general explanation of service characteristics that applies to all types of services. While this approach is valuable from a theoretical point of view, due to the broad variety of different services, it hardly provides very detailed guidelines for the design and management of a specific service. Classification schemes and typologies that classify services and provide distinctive classes calling for similar management tools are needed. Classifying services with respect to the industry that the company belongs to hardly provides further insight, since a particular service may be offered by companies from very different industries. Industries in the service sector are merging, generating competition among companies that were acting in separate market- places before (e.g., in the media, telecommunications, or banking industries). On the other hand, services within one industry may require completely different management approaches. Thus, services have to be classified and clustered according to criteria that relate to the particular service product rather than to the industry. Such typologies can give deeper insight into the special characteristics of a service as well as implications concerning its management.

Several attempts have been made in order to design such typologies. Some of them are based on empirical studies. The study presented in Eversheim et al. (1993) evaluated questionnaires from 249 German companies representing different service industries. By the application of a clustering al- gorithm, seven types of services were finally identified, based on 10 criteria.

A recent study on service engineering (Fa¨hnrich and Meiren 1999) used 282 answered question- naires for the determination of service types. It derived four separate types of services that differ significantly in two ways:

1. The intensity of interaction between service provider and customer

2. The number of different variants of the service that the customer may obtain

Strategies for service development and service operations can be assigned for the four types of services. Interestingly, these results are very similar to a typology of service operations introduced by Schmenner (1995), identifying four different types of service processes: service factory, service shop, mass service, and professional services. Figure 2 gives an overview of the typology, relating it to Schmenner’s types.