Module III
Defining and improving
Productivity
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 1
Defining Services in a services Context
Productivity measures the amount of output produced
relative to the amount of inputs used.
Improvement in productivity requires an increase in the ratio
of the outputs to inputs.
An improvement in this ratio might be achieved by cutting
the resources required to create a given volume of output
or by increasing the output obtained from a given level of
inputs.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 2
Productivity in a Service Context
In services, input includes labor, material, energy and
capital (consisting of land, buildings, info. systems &
financial assets)
Intangible nature of many service elements makes it hard
to measure the productivity of service firms, especially for
information based services.
In a people- processing service, such as hospital, we
look at the number of patients treated in the course of
year at the hospital. But we can’t account for the different
types of interventions performed.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 3
Efficiency, Effectiveness, and Productivity
Efficiency: comparison to a standard-usually time-based (e.g., how
long employee takes to perform specific task)
Problem: focus on inputs rather than outcomes
May ignore variations in quality or value of service
Overemphasis on speed may result in curt & unfriendly service per
customer
Hairdresser
Effectiveness: degree to which firm is meeting its goals
Cannot divorce productivity from quality/customer satisfaction
Productivity: financial valuation of outputs to inputs
Consistent delivery of outcomes desired by customers should command
higher prices
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 4
Measuring Service Productivity
Traditional measures of service output tend to ignore
variations in quality or value of service
That is, they focus on outputs rather than outcomes, and stress
efficiency but not effectiveness.
Firms that are more effective in consistently delivering
outcomes desired by customers can command higher prices.
Furthermore, loyal customers are more profitable.
Intensive competition in Service Sector pushes firms to seek
ways to improve productivity. Let us see how -
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 5
Improving service productivity
1. Generic productivity –improvement strategies
• Careful control of cost at every step
• Efforts to reduce wasteful use of materials or labor
• Replacement of workers by automated machines
• Providing employees with equipment & databases that enable them to work
faster or to a higher level of quality
• Teaching employees how to work more productively
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 6
Cont…………….
2. Customer-driven approaches to improve productivity
• Changing the timing of customer demand
• Courier companies advertising to encourage people to mail early for the service
season
• Managing peaks and valleys of demand
•Involve customers more in the production process
• Internet banking
• Managing cabin trash
• In room safe deposit box
• ATM
• Ask customers to use third party
• Specialized intermediaries – Call centers
• Medical transcriptions
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 7
Backstage and Front stage Productivity
Changes: Implications for Customers
Backstage improvements can ripple to the front stage and
affect customers
e.g., new printing peripherals may affect appearance of bank
statements.
Front-stage productivity enhancements are especially
visible in high contact services.
Some may just require passive acceptance by customers
Others require customers to change their scripts and behavior.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 8
Overcoming Customers’ Reluctance to Accept
Changes in Environment and Behavior
Develop customer trust
Understand customers’ habits and expectations
Pretest new procedures and equipment
Publicize the benefits
Teach customers to use innovations and promote trial
Monitor performance, continue to seek improvements
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 9
Systematic approaches to productivity, quality
improvement & process standardization
1. TQM
• It is originally developed in Japan, are widely used in manufacturing &
more recently used in service firms.
• Control charts, fishbone diagrams, & other TQM tools are being used by
service firms with great results for monitoring service quality, & determining
the root cause of specific problems.
• 12 critical dimensions have been identified for the successful
implementation of TQM in service context
Top-management commitment & visionary leadership
Human Resource management
Technical system including service process design & process management
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 10
Cont……………
Information & analysis system
Benchmarking
continuous improvement
Customer focus
Employee satisfaction
Union intervention & employee relation
social responsibility
servicescapes
service culture
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 11
Cont……………
2. ISO 9000 Certification
• More than 90 countries are members of the International Organization of
Standardization (ISO), based in Geneva.
• The ISO promotes standardization & quality to facilitate international trade.
• The official ISO 9000 definition of quality is “ the totality of features &
characteristics of a product or service that bear on its ability to satisfy a stated
or implied need.
• By adopting ISO 9000 standards, service firms especially small ones can not
only ensure that their services conform to customer expectations but also
achieve improvements in internal productivity.
• Major service sectors that have adopted it are wholesale & retail firms, IT
service providers, healthcare, consultancy firms & educational institutions.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 12
Cont………….
3. Six Sigma
• The Six Sigma approach was developed by Motorola engineers in the mid
1980s to address the issue of increasing numbers of complaints from its field
sales force.
• The program was soon adopted by other manufacturing firms to reduce
defects in a variety of areas.
• Subsequently, service firms embraced various Six Sigma strategies to reduce
defects, reduce cycle times, & improve productivity.
• Two-strategies- process improvement & process design/redesign- form the
cornerstone of the Six Sigma approach.
• Process-improvement strategies aim at identifying & eliminating the root
causes of service delivery problems & thereby improving service quality.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 13
Cont……………….
• Process design/redesign strategies act as supplementary strategy to
improvement strategy.
• The most popular Six Sigma improvement model used for analyzing &
improving business processes is the DMAIC Model. It stands for:
• Define the opportunities
• Measure key steps/ inputs
• Analyze to identify root causes
• Improve performance
• Control to maintain performance
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 14 - 14
