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Service Delivery System Design

Chapter outline

5.1 Defining service

5.2 Service-product bundle

5.3 Service delivery system matrix

5.4 Customer contact

5.5 Service recovery and guarantees

5.6 Globalization of services

5.7 Employees and service

5.8 Key points and terms

The service economy accounts for more than 80 percent of jobs in the United State:: and in most industrialized economies in Europe and Asia today. Yet service p nr duction often receives little emphasis in many business and operations manage- ment courses. Increased emphasis on service process design is needed to reflec: the importance of services in modern economies.

Unlike manufacturing processes, we see service processes every day. As custom- ers, we participate in the process and immediately know whether we are receivin. good or bad service. When was the last time you enjoyed really superior service~ Unfortunately, world-class service is rare. For example, were you happy with you:- last service encounter for automobile repair? Do you enjoy waiting in the doctor 's: office? And what do you think of most airline service?

Services are delivered by a wide variety of organizations-from businesses: selling services to consumers (restaurants, appliance repair), to other businesses: (consulting, accounting), to nonprofit services (health care, education), and to goY- ernment services (licensing, police protection) . The operations function in the organizations varies widely, but there are common elements that allow us to stud~­ the processes used in service organizations.

What can be done to improve services? Service process design is an essentia:. ingredient of better service deliv ery. We take the ideas of process selection ana extend them to services. We expand the discussion into the domains of service product offerings, service system designs, globalization of services, service

Chapter 5 Service Delivery System Design 87

Operations Leader Montgomery County Public Schools

Th e Montgomery County Public Schools in Maryland re- ceived the 2010 Malcolm Baldrige National Quality

w ard. Since 1999, when the education category was created, only five other school districts in the United States have been recognized with this claim of excellence.

With over 11,500 teachers and 22,000 employees .vorking to educate more than 144,000 students from 164 countries speaking 184 different languages across 200 schools during the 2010-2011 school year, he Montgomery County Public Schools was the 16th

largest school system in the United States and had a iscal year 2011 operating budget of approximately

52. 1 billion. Its mission-"To provide a high-quality, w o rld-class education that ensures success for ev- ery student through excellence in teaching and learning"-is reflected in various outcome-based metrics of service excellence:

o A June 10, 2010, report titled Diplomas Count 2010 by Education Week ranked the Montgomery County Public Schools first among the 50 largest school districts in the U.S.A. based on a gradua- tion rate of 83.1 percent, a graduation rate that is substantially higher than the 68.8 percent gradua- tion rate for the entire country. In 2009, with a graduation rate of 80.7 percent, the Montgomery County Public Schools tied a Texas school district for the first-place ranking.

o The graduating class of 2010 saw an increasing number of students participating successfully in advanced placement coursework . Advanced placement courses are equivalent to undergradu- ate course offerings for which a student can re- ceive college credit contingent on excellent examination scores . More than 5000 students from the class of 2010 passed at least one ad- vanced placement exam with a score of 3 or higher (out of 5 maximum). This translates into a passing rate of 50 percent, compared to the 16.9 per- cent passing rate for the entire country.

o The class of 2010 reported an average total SAT score of 1653 . The SAT is a standardized test for college admissions. Not only did the 1653 average SAT score surpass previously documented SAT scores in the history of the Montgomery County Public Schools, it also surpassed the national aver- age SAT score by 144 points.

Photograph available from http://www.nist.gov/ baldrige/award_recipients/mcps_profile.cfm

• Because of scholastic excellence, graduates of the class of 2010 had qualified for more than $230 mil- lion in college scholarships-a 28 percent increase from the class of 2009 in college scholarships.

Besides these student-centered, outcome-based metrics of service excellence, the Montgomery County Public Schools also tracked and improved performance metrics for resources and operational activities such as availability and delivery of school supplies, mainte- nance and repair of equipment, satisfaction and reten- tion of employees, and reduction in energy waste . For example, whereas the 2009 national turnover rate for teachers was 16.9 percent, the turnover rate for teach- ers employed by the Montgomery County Public Schools was merely 4.6 percent.

Excellence in the service delivery system for educa- tion in the Montgomery County Public Schools did not occur overnight. The effort began in 1999 when the Our Call to Action: Pursuit of Excellence strategic plan was created. This strategic plan, with its periodic updates, became the guidance behind comprehensive reforms and continual improvements of all aspects of education delivery within the Montgomery County Public Schools. In July 2011, the Montgomery County Board of Educa- tion approved an updated Our Call to Action: Pursuit of Excellence strategic plan to guide policies and decisions for the 2011 through 2016 time periods.

Source: Adapted from "Climb to the Top," Quality Progress 44, no. 1 (April 2011 ), pp. 39-47; www.nist.gov/ baldrige/baldrige_recipients201 O.cfm; http://www. montgomeryschoolsmd.org/,2012; http://www. montgomeryschoolsmd.org/;2012.

88 Part Two Process Design

guarantees, and the important role played by employees in service organizations. For an example of world-class service, see the Operations Leader box on Mont- gomery County Public Schools.

5.1 DEFINING SERVICE

Most definitions of service stress the intangibility of the offering. Services are in- deed intangible; that is, their processes create value for customers by performing transformations that do not result in a physical entity (product). However, ser- vices can be difficult to define and cannot be easily quantified; for example, do hospital patients consume one service or multiple services as they receive tests and treatments-perhaps numerous in quantity? Rather than specify a formal def- inition of a service, it is important to consider the characteristics of such processes and their implications for both managers and customers.

Simultaneous production and consumption is a critical characteristic of services because it implies that the customer may be in the production system while produc- tion takes place. The customer can introduce uncertainty into the process by placing demands on the service provider at the time of production. Also, the simultaneity of production and consumption means that most services cannot be stored. Examples are tax and accounting services, retail services, automobile and appliance repair ser- vices, and government services. Simultaneous production and consumption implies that the service must often be located near the <Customer so that the customer can travel to the service provider or vice versa. Exceptions are communications and electricity services that can be provided over long distances (e.g., television broad- casting, call centers, and electric power).

It is important to distinguish between service processes that are front office and those that are back office. Processes that require the presence of or interaction with the customer are front office service processes. Processes that do not require the presence of the customer are back office processes. The importance of simultaneous production and consumption therefore applies to front office services because the customer is participating in the process. For example, bank tellers and dentists provide front office services when interacting with customers. This interaction within the service process between providers and customers is critical to service process design but quite foreign to manufacturers. We account for this interaction with the customer as we discuss service processes throughout this chapter.

Back office services, in contrast, can be performed separately from their con- sumption by the customer. Check processing in banks and X-ray development in dental offices are back office processes that are not produced and consumed simul- taneously but become valuable to the customer some time after the work is per- formed. Therefore, back office processes do not have to accommodate an interaction with the customer.

Because characteristics of services vary widely and the extent of interaction be- tween the provider and the customer can also vary greatly, it is difficult to generalize about services. However, they are clearly different from products that are outputs of manufacturing. Some of the important contrasts between products and services are shown in Table 5.1.

The definition of the service-product bundle in the following section provides a foundation for management activities. Additionally, a classification system distin- guishes among different types of services and the associated management tasks.

-!.BLE 5.1 - erences Between

duct and a ce

A Product

A product is tangible Ownership is transferred at the ti me of purchase A product can be resold A product can be demonstrated before purchase A product can be stored in inventory Production precedes consumption A product can be transported

The se ller produces

*Exceptions are electricity and communications services.

Chapter 5 Service Delivery System Design 89

A Service

A service is intangible Ownership generally is not transferred No resale is possible A service does not exist before purchase A service cannot be stored Produdion and consumption are simultaneous A service cannot be transported (though

producers can bef The buyer can perform part of the production

Such a classification system-the service delivery system matrix-is provided later in the chapter.

- .2 SERVICE-PRODUCT BUNDLE

Before the process to deliver a service is designed, the service-product bundle must be defined. The service-product bundle consists of three elements:

1. The tangible service (explicit service). 2. The intangible or psychological benefits of the service (implicit service).

3. The physical goods (facilitating goods).

Most services come bundled with tangible services, intangible benefits, and facili- tating goods. For example, when customers go to a fast-food restaurant, they receive both a tangible (explicit) service, which they hope is fast and accurate, and a facilitating good, the food . In this case, the intangible benefits (implicit service) are the customer's feelings about the interaction and the pleasantness of the sur- roundings. Many services (e.g., medical services) have fixed facilitating goods, such as the office and equipment that are used but not consumed during delivery.

In the case of a taxicab ride, the explicit service is the transportation from one place to another and includes customer perceptions and experiences such as the sound, sight, smell, and feel of the ride. The implicit service is the sense of well- being and security that the cab ride ideally provides. Finally, the taxicab is the facilitating good. It is important in the design of the service not to overemphasize one piece of the service-product bundle and neglect the other elements. New York cab drivers are often accused of making just this mistake when they say, "You got your ride, why are you complaining?"

Most services require a more complex design than a taxicab ride. Consider, for example, any pizza store that delivers (e.g., Domino's). The explicit service is the availability of delivery service and the time it takes for delivery. The implicit service relates to the "clean-cut appearance" and courtesy provided by the delivery agent. These implicit services contribute to a sense of professionalism and security for the customer. The facilitating goods are the pizza itself, which should be delivered hot to the customer, and the pizza delivery vehicle. Consider, as another example, the ex- plicit services, implicit services, and facilitating goods for a ski resort. The tangible (explicit) service is the experience gathered by the five senses in the chalet, the shops, and the ski runs. This includes interactions with the resort employees, the visual ex- perience, the grooming of the slopes, and the challenging nature of the runs. The

90 Part Two Process Design

FIGURE 5.1 Comparison of various products and services packages.

~

Products Services

100% 75% 50% 25% 0% 25% 50% 75% 100%

Self-service groceries

Automobile

Installed carpeting I Fast-food ~estaurant

Auto maintenance

Haircut

Consulting services

implicit service is having fun and the exhilaration of skiing. The facilitating goods are the chair lifts, the buildings, and the mountain itself. The ski resort must ensure that it plans and manages all three aspects of the service-product bundle.

Figure 5.1 provides more examples of a variety of service-product bundles. Notice that most of the bundles typically are provided by service organizations, for example, self-service groceries, fast-food restaurants, and auto maintenance, whereas an auto- mobile typically is considered a manufactured product. Here, we include the auto- mobile as an example of a service-product bundle because the purchase of a new auto includes several service elements that customers recognize and pay for. The auto bundle includes not only the physical product but also the ability to test-drive and finance the product at the dealership in addition to the manufacturer warranty that covers the auto. The combination of these service elements with the product makes up what we consider a service-product (or product-service!) bundle.

The task for operations management, before delivering any services to custom- ers, is to design the service delivery system. That system includes all the processes that will be used to deliver services, including details such as the technology used in the process design, the types of employees needed, and even the appearance of the employees and facilities. While operations management can fairly tightly con- trol both the explicit service and the facilitating goods, implicit services- or the feeling customers get from a service- are obviously harder to control (and may vary greatly from one customer to another). Therefore, it is important that man- agement use the means it has available (e.g., technology or employees) to do its best to design the intended feeling into the service delivery system.

An important point to emphasize is that the design of the service to be deliv- ered and the design of the service delivery system are intertwined and, often, can- not be conducted separately. Also, the d elivery of a service is a simultaneous marketing and operations act that requires both the right visual cues and well- functioning processes . Therefore, cross-functional cooperation is the essence of service design and delivery. Service cannot be provided without it.

Like products, services have supply chains, although they may be less con- cerned with the flow of the physical product and more concerned with the flow of work, customer, and information. Services use inventory, and so they rely on product-based supply chains to provide that inventory. But they also rely on

Chapter 5 Service Delivery Sys tem Design 91

intangible work, information, and financial flows . For example, a hospital patient requires service processes for explicit service treatments (surgery, perhaps) and additionally the work flow of outsourced lab tests, the information and financial flows from insurers, and coordination of work and information as the patient is discharged from the hospital to a rehabilitation center. Such a complex network of supply chain activities mirrors the activities of product-based supply chains but usually includes both tangible product flows and intangible work flows .

. 3 SERVICE DELIVERY SYSTEM MATRIX

_ oodles and - ompany-Service

ign," Vol. XV

There are many ways to think about services, the options they offer customers, and the variety of ways in which they can be delivered or carried out. For exam- ple, some services can be delivered in only one standardized way and every cus- tomer gets more or less the same service. Other services are highly customized to customer requests, and exactly the same service is virtually never repeated for another customer. The challenge for management is to design the right service process to match the service delivery system to the requirements of its customers.

To incorporate both customer preferences and design requirements of the ser- vice delivery system, Collier and Meyer (1998) suggest the service delivery system matrix, which is shown in Figure 5.2. On the top of the matrix is the dimension of customer wants and needs, which captures the service package (or service-product bundle) customers are seeking. This dimension incorporates the uniqueness of de- mands from one customer to another, an indication of the uncertainty and varia- tion introduced into operations by individual customers. Customers with basically the same wants and needs can be served by processes that are highly standardized and routinized, whereas customers with unique wants and needs must be served by processes that allow a great variety and high levels of customization.

The vertical side of the service delivery system matrix represents the opera- tions service system and denotes the number of different pathways that service customers can take in the service process. In other words, this side of the service delivery system matrix answers the question: "How many different ways can the service be delivered?" It varies from a single pathway or small number of path- ways to a virtually infinite number. A small number of pathways allows few op- tions in how the service is delivered; however, an infinite number of pathways allows the service to be different each time it is delivered.

When both dimensions of the service delivery system matrix are considered, three types of services can be identified. Customer-routed services are those in which cus- tomers want a unique, highly customized experience. Customers have a great deal of decision-making power to determine the components of the service as well as how and when and the sequence in which they are delivered. For these services, each cus- tomer wants a different set of experiences, and the service process must allow a great deal of personal discretion and interaction with the customer. These services are car- ried out using highly flexible processes and may rely on highly trained workers to deliver the right set of experiences to match customer wants and needs. Personal trainers, Internet shopping, and museums are examples of customer-routed services. Customer-routed services are similar to those delivered by the job shops described in the previous chapter in terms of their allowance for customization.

In the midranges of both customer wants and needs and service delivery sys- tem design, co-routed services offer a moderate number of choices to customers, using moderately standardized processes. Medical and stockbroker services fit in

92 Part Two Process Design

FIGURE 5.2 Service delivery system matrix. Source: A d apted from Collier and Meyer (1998) .

-~ <JJ

"' 0 e .2l ~

(/)

~ "' .:::

0:: 0

"' v .E "' (/)

Many process pathways. Jumbled flows, complex work with many exceptions.

Moderate number of process pathways. Flexible flows with some dominant paths, moderate work complexity.

Limited number of process pathways. Line flows, low work complexity.

Customer Wants and Needs in the Service Package

Highly customized with unique process sequence. Customer has great decision-making power.

Standard with options, using moderately repeatable sequence. Customer has some decision-making power.

Standardized with highly repeatable process sequence. Customer has low decision-making power.

this category. A golf course is another example of a co-routed service in which management has designed the course to be played in a standardized sequence (from Hole 1 to Hole 18), but within the service delivery system customers have a reasonable degree of decision-making power in how they choose to play.

Finally, highly standardized services are delivered using a design for provider- routed services. These services are characterized by processes that allow few op- tions during service delivery and are matched with customers whose needs are very similar to one another. Automatic teller machines (ATMs) are examples of a service delivery system with a very limited number of pathways from which cus- tomers may choose. An ATM provides a limited set of services, and there is little customer discretion in using an ATM. Customers whose needs are not met by an ATM must interact with the bank via other means, such as calling or visiting a branch office. Eating at McDonald's and getting a blood test are other examples. Provider-routed services are therefore similar in nature to the assembly-line

Chapter 5 Service Delivery System Design 93

process. We refer to them as provider-routed because the provider, either an indi- vidual or an organization, decides how a particular service will be carried out.

The service delivery system matrix is intended not only to classify the different types of services but also to indicate how the operations management task differs among services. For example, provider-routed services may require operations management attention to automation and capital investment, but customer-routed services may require more attention to management of human resources and flexible technology issues.

Like the product-process matrix, the service delivery system matrix suggests that service firms be located on the diagonal, indicating alignment between the service package and the service process. Both the choice of which customer segments to serve (horizontal dimension) and decisions regarding design of the service delivery system (vertical dimension) are strategic in nature. Marketing, operations, and hu- man resources functions must work closely to ensure that external opportunities and internal capabilities have been considered during strategic planning.

The major difference between the service delivery system matrix and the product-process matrix that guides the selection and design of manufacturing pro- cesses is that the design of the service delivery system generally does not vary with customer volume. In the product-process matrix, the volume and customiza- tion of the product offering are the major factors in determining the most appro- priate production process. In contrast, services often are delivered using the same process whether they are produced in small or large volumes. For example, very similar processes are used for a medical service such as setting a broken leg re- gardless of whether the service is deliv ered at a large 2000-bed hospital, which has many such patients, or in a smaller 120-bed hospital. Similarly, fast-food res-

- -serv ice appeals to many customers - - ¥ iding efficiency.

taurants treat customers the same way regardless of the num- ber of customers they serve and regardless of customer order size. To increase volume, fast-food restaurants simply open more locations, but the service process is the same. The de- gree of customization of a service, rather than volume, is the main characteristic that affects the design of the service pro- cess and the way the service is delivered.

Self-service by customers is also a consideration in service delivery system design. Customers may serve as labor at key points in a service process, such as bagging their own grocer- ies, or they may complete an entire service process indepen- dently, as occurs when they fill their tanks at a self-service gas station. Self-service usually benefits the firm as customers pro- vide "free" labor during service delivery. For self-service to be a successful component of service delivery system design firms must design their service processes carefully for both simplicity and customer satisfaction.

Self-service is possible delivery system for any of the types of services defined in the service delivery system matrix, from simple standardized services to highly cus- tomized services. A key issue for operations managers is designing self-service opportunities that customers are both willing and able to perform. While the relatively sim- ple self-service offered at ATMs appeals to a wide range of customer segments, having to pull one's retail selections

94 Part Two Process Des ign

from warehouse shelving (e .g ., at IKEA stores) may limit the appeal of the retail service for some segments. For more highly customized service needs, such as planning a complex vacation, some customers revel in the intricacies of self- service websites, but other customers find it easier to purchase the services of a travel agent. An understanding of the needs of a firm's target customer seg- ments must serve as a guide to the right service delivery system design.

5.4 CUSTOMER CONTACT

~ "The Service

System Design Matrix," Vol. XI

We now look at interactions between customers and ser,vice organizations in detail to understand the management of customer contact. Chase and Tansik (1983) re- late service processes to the extent of customer contact. With low-contact services, it is possible to separate a service into two portions: a service creation or produc- tion portion and a service consumption or delivery portion. By doing so, the cus- tomer can be removed from the service creation portion. Separating the customer from the service production portion allows for greater standardization of processes and therefore better efficiency. Examples of low-contact services are catalog order processing and ATM transactions. As indicated above, these services are usually designed using a provider-routed approach. See Figure 5.3, in which low-contact

FIGURE 5.3 Customer contact matrix . Source: Ad ap ted from Richard B. Chase, F. Robert Jacobs, and N icholas J. Aquilano, Operations Management for Competitive Advantage, lOth ed. (New York: McGraw-Hill, 2004). r

High

Sales opportunity

Low Worker

Requirements

Focus of Operations

Innovations

Buffered core (none)

Clerical Helping skills skills

Paper Demand handling mgmt.

Office Routing automation methods

Degree of customer/server contact

Permeable system (some)

Verbal Procedural skills skills

Scripting Flow calls control

Computer Electronic databases aids

Trade skills

Reactive system (much)

Diagnostic skills

Capacity Client mgmt. mix

Self- Client/ serve worker teams

Low

Production efficiency

High

of Customer-

Chapter 5 Service Delivery System Design 95

services are referred to as buffered core because these services are buffered or re- moved from interactions with the customer.

At the other end of the contact spectrum, high-contact services involve the customer during the production of the service. Examples are dentistry, haircut- ting, and consulting. In these services, the customer can introduce uncertainty into the process with a resulting loss of efficiency. For example, a customer may impose unique requirements on the service provider, resulting in a need for more processing time. In this case the service delivery system design typically will be customer-routed unless customization has been limited by the provider. These interactions are referred to as reactive in Figure 5.3 because the service delivery system must react to customer requests. In the middle ground of cus- tomer contact, permeable systems have processes that are penetrated by cus- tomers in fairly restricted ways, usually via telephone or limited face-to-face contact.

Operations managers must be concerned with the amount of customer contact because higher levels of customer contact can introduce variability into a process. Variability is a challenge for operations managers because it makes capacity planning more difficult and can result in waiting lines. Variability within the service delivery system results from the uncertainty introduced by customers, which comes in many forms. Frei (2006) categorizes customer-introduced variability by various types of uncertainty. Table 5.2 defines these five types of uncertainty. Service firms must overcome the challenges of managing such types of uncertainty to be as efficient as possible. Service firms that try to accommodate all types of customer-introduced uncertainty m ay find that the cost of delivering the service begins to spiral out of control. Managing the uncertainty, either by using creative means to reduce it or by finding low -cost means of accommodating it, provides a better solution.

Chase and 'Fansik (1983) propose that high-contact services can lead to a loss of efficiency as follows:

Potential inefficiency= f (degree of customer contact)

The measure of the degree of customer contact is the amount of time it takes for the service to be produced, ·delivered, and consumed by the customer. For ex- ample, a highly efficient service delivery system is one with no customer contact in which the order can be processed away from the customer. At McDonald's, the degree of customer contact may be about 70 percent. Most of the processing of the customer's order is done at the front counter while the customer is wait- ing. However, some of the food can be prepared in the back room away from the customer.

High levels of contact may be costly in terms of lost efficiency, but they offer opportunities to increase sales to customers, resulting in increased revenue for the

• Arrival variability-uncertainty in when customers will arrive to consume a service.

• Request variability- uncertainty in what customers will ask for in the service-product bundle.

• Capability variability- uncertainty in the ability of customers to participate in a service.

• Effort variability-uncertainty in the willingness of customers to perform appropriate actions.

• Subjective-preference variability- uncertainty in the intangible preferences of customers in how service is carried out.

96 Part Two Process Design

Airline service is a high contact service with little customer variability.

service firm, as shown in Figure 5.3. For example, consultants often have a high degree of contact with clients, and such interactions provide them with opportunities for additional consulting work and therefore additional revenue.

Chase and Tansik (1983) advocate separating high-contact and low-contact parts of service de- livery sys tems . This separation often is referred to as the front office (high contact) and the back office (low contact). As defined earlier in this chapter, front office operations require intensive customer interactions, whereas the back office operates more like a traditional factory. The sep- aration of high-contact and low-contact services is an application of the principle of focused operations.

There are several characteristics of high-contact and low-contact services:

• Low-contact services are used when face-to-face interaction is not required, for example, ship- ping operations or check processing in banks.

• Low-contact services require employees with technical skills, efficient process- ing routines, and standardization of the product and process. High-contact ser- vices require employees who are fle xible, personable, and willing to work with the customer (the smile factor) .

• Low-contact operations can work at average demand levels and smooth out the peaks and valleys in demand. Providers of high-contact service must respond immediately as demand occurs in peak situations .

• High-contact services generally require higher prices and more customization due to the variable nature of the service.

While customer contact is an important ingredient of service d elivery system design, it is not the only consideration. Contact with customers becomes increas- ingly challenging to manage with increases in the total duration of interactions and the richness of the information exchanged during interactions. The nature of uncertainty introduced by the customer is also of critical importance. For example, contact can be high, but if the customer interface is standardized or the customer provides self-service, efficiency is still possible. In fast-food restaurants the degree of customer contact is relatively high, but the nature of the contact is highly con- trolled in contrast to a fine-dining restaurant, where there is more uncertainty in what the customer may request. Thus, high contact by itself is not always ineffi- cient; it becomes inefficient when customers introduce uncertainty or do not provide self-service.

5.5 SERVICE RECOVERY AND GUARANTEES

Service recovery is another important element of service management that is a factor when there is a service failure- in other words, when something goes wrong during the delivery of a service. Service recovery consists of the actions

Chapter 5 Service Delivery Sy stem Design 97

necessary to compensate for the failure and restore, if possible, the service re- quested by the customer. For example, when there is a power failure, service re- covery includes the time it takes for the electric company to restore power. In a restaurant, if the waiter spills soup on a customer's lap, service recovery includes helping to dry the clothes with napkins, the depth of the apology provided, and the offer to dry-clean the clothes at the restaurant's expense. Often when the ser- vice recovery is swift and properly performed, the customer accepts the service failure and recovery and is satisfied with the overall service experience. The im- portant point is that the service recovery must be swift and appropriate in the customer's eyes. Because service failure from time to time is nearly inevitable, service firms must design recovery processes to ensure that such actions are taken consistently.

We all have personal examples of service recovery. Recently, the morning news- paper was not delivered to the house of one of the authors . After the newspaper office was called, a paper was hand-delivered within 30 minutes together with a verbal and written apology. The author judged this to be excellent service recovery and was satisfied with the result. See the Operations Leader box on UPS for an- other example of a satisfying service recovery.

Many companies are solidifying their service recovery processes by offering service guarantees as a way to define the service and ensure its satisfactory deliv- ery to the customer. A service guarantee is like a product guarantee, except a

Operations Leader UPS Service Recovery

- cu stomer who usually received packages at the of- :e o rdered a large storage unit and ~eeded to have

- :lelivered to her house. Tara Hunt, an Intuit execu- e, ca lled UPS to check on it and was told that during

--::h ol iday rush, some packages are not delivered until =- ate as 9 p.m.

gitated, she posted a message on Twitter about =· ing for UPS and stated that she could not walk

-=,d og while she waited, not wanting to miss the de- !:"f. Tony Hsieh, CEO of Zappos, was following her

Tweets after having met her previously. He was hav- ing dinner with the UPS president and relayed her frustration to him. Five minutes later, the UPS ex- ecutive called and got her

"Service at Zappos," Vol. XIV

in touch with an operations manager to arrange de- livery for the following morning.

At 9 a.m. sharp, the doorbell rang. Not only was the package delivered, but the UPS employee brought flowers and chocolates, along with treats and toys for her dog! Ms. Hunt says she now goes out of her way to use UPS, and she bought shoes at Zappos the very next day.

Tara Hunt has since moved on to start her own business in Montreal, Quebec, Canada. Buyosphere, the company she co-founded and is now serving as CEO (or Chief Experience Officer), connects online shoppers of products with intermediaries who can find these products. Learn more about her and her company at http://www.horsepigcow.com/.

Source: Adapted from: "A Social Networker's Story, " BusinessWeek, March 2, 2009, p. 30; www.horsepigcow .com, 2012.

98 Part Two Process Design

TABLE 5.3 Service G u arantee Examples

customer- cannofieturnaservice-if he or sh e does n ot hke 1t. For example, If you d o n ot like your haircut, you have to live w ith it until your h air grow s ou t.

A service guarantee h as two comp on ents: (a) a p romise of w h at service w ill b e d elivered and (b) what the p ayout and, often, the service recovery will be if the promise is n ot fulfilled. A number of examples of service guarantees are shown in Table 5.3. Note that the fewer conditions on the serv ice guar antee, the b etter. Moreover, a service guarantee must b e "meaty " to b e effective. If the gu arantee is too small, it w ill n ot provide an incentiv e for d elivering b etter service or providing customer satisfaction in the face of service failure.

Feder al Express, for example, h as a money-back service guar ante e for its sh ippin g services w ithin the United States . Packa ges will be d elivered by the time promised (e.g., 10:30 a.m. the n ext business day) or money w ill be refunded to the customer. This service guarantee d efines exactly w hat variou s operational activities in shipping a p ackage from one location to another must achieve and w hat happ ens w h en a service failure occurs. Another example is A tlantic Fasteners, a distributor of h ardw are in M assachusetts, w hose serv ice guarantee for on-time d elivery is given as follo w s: "We d eliver d efect-free in-stock fasten- ers on time as p rom ised or we give you a $100 credit ." Atlantic Fasteners b acks

Atla ntic Fasteners (see ht tp:/ /www.atla nticfasteners.com/services/serv _guar I cover.html)

This company guarantees on -time delivery of defect-free in -stock fastene rs to customers as promised; otherwise, customers will receive a $100 credit.

Comcast Corporation, The Comcast Cust omer Guara ntee (see ht tp:/ /www.comcast.com/corporate/customers/ customerguarantee.htmi?SCRedirect=t rue)

The Comcast Customer Guarantee stipulates a 30-day, money-back guarantee on video, vo ice, or high-speed services when a customer is not completely satisfied and a $20 cred it or th ree months of premium channels for free when missing a schedu led appointment or when installation or routine problems are not resolved on the f irst visit.

Federa l Express (see http://www. fedex.com/us/service-gu ide/ options/money-back-guarantee. html)

Federal Express guarantees de livery of customer packages by the time promised; otherwise, customers will receive a refund.

Pacific Gas and Electric, California-Uti l ity (see http:/ /pge .com/myhome/ customerservice/serviceguarantees/)

PG&E will meet the agreed -upon appointment t ime set between a customer and its ca ll center; otherwise, a $30 credit wil l be automatical ly posted to the customer's account. PG& E wil l invest igate non-emergency situations (check meter) within seven days of the customer's request; otherwise, a $30 credit will be automatically posted to the customer's account.

Reproductive Medicine & Infertility Associates, Minnesota-In Vitro Fertilization (see http :/ /www.rmia.com/ivf_ferti l ity _cost.htm)

The Standard IVF Fertility Cost Warran ty Program (FCWP) offers qualified patient s up to th ree cycles of in vitro fertilization. A predetermined portion of the cost wil l be refunded if patie nts do not achieve a live birth plus 30 days of life.

Summit Company, Southwest United States-Electric Product Supplier (see http://www.su mm it. com/ about-us/Service-Guarantees. php)

When a custome r walks into a Summit service center t o order parts, an associat e wi ll provide service to the cust omer in 30 seco nds; ot he rwise, a $5.00 credit wi ll be provided toward the next pu rchase .

Chapter 5 Service Delivery System Design 99

up its service guarantee by posting on its website for potential customers to see more than a decade of data on the number of payouts it has had to make, as well as their causes. Other companies may offer somewhat less-precise service guar- antees. For example, hotels may give you a free night's stay if you are not satis- fied. A restaurant server may give you a free dessert or a free meal if you are not satisfied with the food. These service guarantees are not as precise in guiding operational activities as the Federal Express or the Atlantic Fasteners service guarantees, but they are, nonetheless, better than not having a service guarantee at all.

The service guarantee is not an advertising gimmick or simply a way for cus- tomers to get their money back if they are not satisfied. It is an assurance that the service provider will perform as promised. And if a customer is not satisfied and requests the payout from the service guarantee, the service provider can use the request as feedback to understand both what customers expect from the service and how the service delivery system can be designed to better match customer expectations.

A carefully crafted service guarantee benefits both customers and the service provider. For the former, a service guarantee reduces the risk in purchasing the service. Customers know exactly what service they are buying, when a service is deemed to have failed, how such service failure would be recovered, and how they would be compensated. For the latter, a service guarantee clarifies explicitly what is to be achieved by the service. Such clarification of intent helps improve the design of the service delivery system, specifies the extent of service recovery re- quired upon service failure, and presents a clear vision to motivate employees to delivery high service quality. A service guarantee can, moreover, reward the ser- vice provider with loyal customers. Surveying employees and customers of the service repair otganizations for two copier firms, the after-sales organizations for two recreational motorsport vehicle manufacturers, and two large insurance firms, Hays and Hill (2006) reported that service guarantees increase customer satisfac- tion, with customers more likely to engage in repurchase behavior and to recom- mend the services provided to their friends.

Hart (1995) advocates that service guarantees be extended to internal services. Every firm has departments whose sole mission is to provide services to other departments, such as data processing, legal, and human resources. These service departments can be held to a high standard of service just as external services are. When this is done, the company must first define the customers of the internal service provider, the customer must define the level of service required, and then management must determine a significant cost or penalty if the service is not de- livered as required.

GLOBALIZATION OF SERVICES

Not only has technology had·profound effects on the manufacturing of products, its impact on how services are delivered has been remarkable as well. Table 5.4 shows examples of technologies used in a variety of services ranging from medical care to education to telecommunications. We discuss here the globalization of services in terms of both how technology has enabled many types of service pro- cesses and how technology has enabled outsourcing and offshoring of services. First, we contrast how technology has been used to, on the one hand, automate

1 00 Pa rt Two Process Design

TABLE 5.4 Examples of Technologies Supporting Service Delivery

~,

Service

Medicine

Telecommunications

Retail Education Legal Hotels

Airlines

Examples of Technology

Intensive care units, MRI scanners, medical records, automated diagnostic testing, pacemakers

Cellular phones, TV, video conferencing, satellite communications, e-mail, Internet

Point-of-sale scanners, bar-code readers, inventory control systems Computerized libraries, Internet, interactive learning Com pute rized searches, databases for evidence, word processing TV checkout, keycard security, reservation s systems, heating/ventilation

controls, guest computers, Internet access Air traffic control system, electron ic cockpits, res ervation systems,

in-flight technology services

service processes and, on the other hand, enhance the employee-customer relation- ship in service organizations .

In a classic article, Levitt (1972) describes what he calls the production-line approach to service. With this approach, services should be standardized and the service facility itself should be designed to minimize mistakes or deviations from the standards. Service delivery is automated as much as possible so that costs are low. Typically, the service is provider-routed with low customization.

Levitt uses McDonald's to demonstrate these concepts . McDonald's standard- izes its service system to a great extent, and technology is a key ingredient in its system. Specialized tools to ensure consistency include the timing devices used for cooking and the wide-mouth scoop for filling french fry bags to the correct levels in an efficient manner. Food inputs and technologies for cooking and serving at McDonald's are also carefully specified to ensure consistency. Even procedures for cleaning restaurants are prescribed in detait all to standardize the service and deliver it in a controlled and efficient manner around the world.

As we saw earlier in this chapter, there are many types of services. Automating services is not the solution to all service problems. While the resulting service may be more efficient (more customers served for a lower per-customer cost), automa- tion can change the nature of the service and reduce the number of selling opportu- nities. The market ultimately will determine how much automation is reasonable.

A contrasting view comes from Schlesinger and Heskett (1991), who argue that managers should view employees, not technology, as the center of the service de- livery system. They suggest that a better model of industrialization is one in which service companies do the following:

• Use technology to support front-line employees, not to monitor or replace them.

• Value investments in employees as much as or more than investments in technology.

• Make recruitment and training as important for front-line workers as for man- agers and staff employees, and link compensation to performance for employees at every level.

This employee-focused approach offers an alternative to the production-line approach by emphasizing both people and technology in service systems. We give further attention to service employees in the next section.

Next, we turn to discussing the outsourcing and offshoring of services. Both of these practices have been enabled largely by advancements in information

Chapter 5 Service Delivery Sys tem Design 101

technology. While there is some debate over exact definitions, we use the follow- ing ones here. Outsourcing of services is having an organization outside your own firm perform service activities such as workforce recruiting, payroll manage- ment, accounting services, and call center functions . Offshoring, in contrast, is the export of these serv ice activities to other countries.

We begin with an example. The MedTrava Group, a Florida-based firm, arranges medical procedures for U.S. patients who travel abroad for treatment. Coronary bypass surgery costs about $65,000 in the United States but only about $9000 in India. While many still believe that medical care is not an exportable service, today' s global medical services are reporting good results with low prices and high quality.

Outsourcing of services presents many of the same opportunities and chal- lenges as outsourcing manufacturing. Potential upsides include lower costs and focusing on core competencies; downsides include coordination costs and loss of direct control. One difference from manufacturing is due to the intangibility of services. While physical products can be inspected upon receipt from a supplier, services can be more challenging to inspect and therefore require additional mech- anisms to ensure that service performance standards are met.

Service outsourcing requires attention to both people and processes. The expecta- tions of the target customers are a major determining factor in selecting the right pro- cess for an outsourced service. Management must also be sure to link customer wants and needs (refer back to the service delivery system matrix) with the appropriate pro- cess. Understanding the desires of the customers will lead to a set of strategically linked decisions on the appropriate mix of processes, technology, and service workers.

A recent report on global offshoring of services by Duke University and Booz & Co. (Conto et al., 2008) provides interesting insights. Their data collected from firms in the United States, Europe, India, and China, among other places, clearly show that rath~r than looking for lower-cost services, most firms offshore to gain access to global talent. They report five major findings:

1. Transaction-intensive offshored services, such as IT maintenance and call cen- ters, are quickly become commoditized. This is expected to drive down prices, likely leading to mergers among the major global providers of these services.

2. Offshoring is increasingly common for professional service work, particularly in engineering, analytical work, and legal services. Due to the high degree of cus- tornization of these services, consolidation among these providers is less likely.

3. Small service providers can provide niche, high-end services that larger provid- ers cannot. Due to their global dispersion, working with these small providers will require the offshoring firm to create a complex global network of providers.

4. Talented service workers around the world are being captured by fast-moving offshoring firms . Firms that do not grab such talent now may find it is short supply in the future.

5. Many global service providers to offshoring firms do not always deliver consis- tently good quality. Both the offshoring firms and the service providers find it difficult to collaborate in developing and managing common business pro- cesses and achieving shared objectives.

In summary, the report adds, "Major multinationals must act like octopi stretch- ing their tentacles in every direction to grasp the necessary skills and capabilities." Doing that presents many challenges for operations managers in terms of coordi- nating their service supply chains and achieving business objectives.

102 Part Two Process Design

Operations Leader Offshoring Services to India

While we hear much about call centers offshored from the United States to India, less widely discussed is the offshoring of professional services. Professional services are those requiring highly trained and/or educated workers. In the past, many believed pro- fessional services were immune to offshoring, but with ever-improving information technology, such practices are becoming quite common.

• Lawyers in India employed by the Tusker Group in Austin, Texas, reviewed 400,000 documents for $25 an hour. Similar work could cost more than $125 an hour in the United States.

• When Altoona Hospital's seven radiologists in Altoona, Pennsylvania, could not keep up with

reading scans for nighttime emergency cases, they hired Teleradiology Solutions, based in Bangalore, India. The Indian radiologists are U.S.- trained, and their opposite work hours help doctors on both sides of the world get more sleep. Says one Chicago radiologist with a similar offshoring arrangement, "We didn't do it be- cause we're lazy and didn't want to work . We did it for quality reasons."

• According to Russell Smith, president and chair- man of SDD Global Solutions (http://www .sddglobal.com/index.htm), a full-service legal outsourcing firm with offices in Mysore and Bangalore in India, New York in the United States, and London in the United Kingdom, the increasing trend to offshore legal services to India will turn the legal world "upside down" in many ways. To read more, check out the January 17, 2011, blog' entry titled "12 Ways Offshore Legal Outsourcing Could Shake Up the Law World in the New Decade" at http://lawwithoutborders .typepad.com/lega loutsourcing/2011 /01 /12-ways -offsho re-I ega 1-outsou rei ng-cou I d-sha ke-u p-the -la w-world-in-the -new-decade-.html.

Sources: "More Legal Legwork Is Outsourced to India," USA Today, October 15, 2008; "Some U.S. Hospitals Outsourcing Work," Associated Press, December 6, 2004; www.sddglobal.com/index.htm, 2012.

Some readers may be surprised to learn that rriany industrialized countries have a surplus of service offshoring into them. For example, both the United States and the United Kingdom run service trade surpluses; that is, other countries off- shore significantly more services into these countries than the United States and the United Kingdom offshore to other countries. Recall that services make up about 80 percent of most industrialized economies. Managing service processes globally means managing services outside of one's own country in addition to accepting service work from firms abroad . See the Operations Leader box for stories on offshoring U.S. services to India.

5.7 EMPLOYEES AND SERVICE

~ "Service Design at

Hotel Monaco," Vol. IX

Service profitability has been linked to focusing on customers and employees as paramount in importance. Managers should focus in particular on the front-line employees who deliver the service, the technology that supports them, training, and customer satisfaction. When these factors are linked and improved, profits will be improved according to the service-profit chain, as described by Heskett and colleagues (1997).

Chapter 5 Service Delivery Sys tem Des ign 103

GURE 5.4 The links in the service-profit chain. :xrrce: James L. H eskett et a!., "Putting the Service-Profi t Chain to Work," Harvard Business Review, March- April l994, p. 166.

Operating Strategy and Service Delivery System

~ + ~

Employee ~ ~

Revenue retention growth

Internal External service ~~

Employee 1-

' ~ service ~~

Customer ~~

Customer"" satisfaction satisfaction loyalty qu ality value

' Employee ~ ~ productivity ~ Profitability

·orkplace design IJ Service concept: IJ Retention 'ob design Results for customers IJ Repeat business ::J:nployee selection IJ Referral - d development ::-==ployeere wards

d recognition :::-ools for serving customers

IJ Service designed and delivered to meet targeted customers' needs

The service-profit chain in Figure 5.4 shows that customer loyalty is the key to revenue growth and profitability. Although focusing on market share has been touted as the key to profitability, recent evidence is pointing toward customer loyalty as an additional factor of equal or greater importance. The lifetime value of a loyal cus- tomer can be tremendous. For example, a loyal pizza eater generates a lifetime rev- enue stream of $8000, and a loyal automobile owner produces $332,000. Even a 5 percent increase in customer loyalty can increase profits in many industries by 25 to 85 percent.

The service-profit chain shows that customer loyalty is driven by satisfied customers. Naturally, if customers are satisfied, they will not only provide repeat business but also tell others about their positive experiences. It is important to move beyond barely satisfied customers; customers should feel that the service is so exceptional that it is worthwhile telling others about it. Customers who report very high levels of satisfaction affect profitability through their loyalty much more than do customers who are merely satisfied.

The service-profit chain also includes external service value, which leads di- rectly to satisfied customers. External service value is the benefit customers re- ceive minus the cost incurred in obtaining the service, which includes not only the price but the costs of finding the service, traveling to the service location, waiting for the service, and correcting any service problems encountered. For example, the Progressive Corporation, an insurance company, has created CAT (catastrophe) teams to fly to the scene of major accidents to quickly provide sup- port services such as transportation, housing, and claims handling. By avoiding legal costs and putting more money quickly into the hands of the insured par- ' ties, the CAT team more than makes up for the costs of travel and maintaining the team. The CAT team provides value to customers, and this explains why Progressive has one of the highest margins in the property-and-casualty insur- ance industry.

104 Part Two Process Des ign

Now we come to the employee part of the service-profit chain. Productive employees are essential in delivering value to the customer. Productive employees lower the costs of operations and ensure satisfied customers when supported by management and appropriate technology and systems. For ex- ample, Southwest Airlines has the most productive employees in the airline in- dustry. As a result of short routes, fast turnaround, and productive employees, Southwest has 40 percent greate·r aircraft and pilot utilization than its competi- tors. At Southwest, customer perceptions of value are very high. The combina- tion of frequent departures, on-time service, friendly employees, and very low fares leads to high perceptions of value for the customer. Employee retention and low employee turnover help drive productivity and customer value . Tradi- tional studies of the cost of employee turnover consider only the cost of recruit- ing, hiring, and training replacements. In reality, the greatest cost of turnover is the lost productivity and decreased customer satisfaction associated with new employees .

According to the service-profit chain, employee retention and productivity can be assured by having satisfied employees. For example, a study of insur- ance company employees found that 30 percent of dissatisfied employees in- tended to leave the company, a potential turnover rate three times that of satisfied employees. Satisfied employees are the result of what Heskett and his associates (1997) call internal service quality. This includes the employee selec- tion process, workplace design, job design, reward systems, and the technology used to support service workers. A study of U.S. hospitals found that focusing management's attention on improving intern~l service quality systems to pro- vide support for employees in conducting their work was linked significantly with employee satisfaction, higher productivity, and lower turnover. Employ- ees will be satisfied with their jobs when they feel that they can act on behalf of customers. This will lead to both employee and customer satisfaction. This is achieved in part by giving front-line employees latitude to use resources to meet customer needs immediately. For example, in Ritz-Carlton Hotels, front- line employees are authorized to spend up to $2000 to satisfy a customer need. Recent research by Yee, Leung, and Cheng (2011) confirms that high-contact services in Hong Kong can significantly increase their sales revenue by increas- ing employee satisfaction and loyalty as a means to increasing customer satis- faction and loyalty.

The service-profit chain illustrates the central role of employees in delivering services to customers. This differentiates services from manufacturing, since man- ufacturing employees rarely have direct contact with customers. A manufacturing employee's effect on customer satisfaction is through the product that the cus- tomer may receive days, weeks, or months later. However, the morale, attitude, and satisfaction of service employees is directly- and immediately- related to customer satisfaction and loyalty. There is no buffer zone between service employ- ees and customers in high- or medium-contact services.

The service delivery system design should reflect this direct contact between service employees and customers. This can be done by providing real-time (dur- ing the service delivery) tools such as computer access to customer information to help service employees perform their jobs. For example, bank tellers who can quickly scan relevant portions of a customer account while the customer is face-to- face or on the telephone with them can present banking products that fit the cus- tomer profile. Such personalized selling opportunities tend to be more successful

Chapter 5 Service Delivery System Design 105

than low-contact marketing such as placing a flyer in the customer's monthly statement (see the previous section on customer contact). Services can also be im- proved through so-called smile training, in which service workers are trained to be nice to customers and seek their satisfaction even in pressure situations. Service workers should be rewarded for both productivity and customer satisfaction. The service-profit chain shows that these two measurements are not in conflict; rather, productivity can actually drive customer satisfaction, as was illustrated above. Both satisfaction and productivity can be achieved not by trying harder but by improving the use of people, technology, and service process flows. These points will be covered in detail in the next two chapters.

Sears, Roebuck and Co. showed that the service-profit chain can be used for prediction. Specifically, they used data on employees, customers, and financial performance in their retail stores to develop a set of relationships among the com- ponents of the model (see Figure 5.4). They determined that a 5-unit increase in employee attitude would lead to a 1.3-unit increase in customer satisfaction. That increase in customer satisfaction would improve revenue growth by 0.5 percent. Therefore, if Sears internally observed an increase in employee attitude, it could fairly accurately predict short-term revenue growth based on historical data and the predictive power of its service-profit chain.

An interesting application of the service-profit chain is being made at Harrah's in Las Vegas, Nevada. Traditionally, the gambling industry has catered to high rollers. A former professor at the Harvard Business School, Gary Loveman, Harrah's CEO, is revolutionizing the gaming industry by arguing that the key to profitability and growth is not only catering to the high rollers but providing exceptional service to all customers and treating gamblers like shoppers. "People don't understand that gaming itself is fundamentally entertainment," says Loveman. He is looking for frequent shoppers from all walks of life to play the odds again and again ... and again! This will be done by having satisfied employees provide exceptional service to satisfied and loyal customers. 1

.8 KEY POINTS AND TERMS

This chapter has emphasized the design of service delivery systems. The key points are as follows:

• A front office service is defined by simultaneous production and consumption. This makes it impossible to store a service for later use, and a service often must be located n ear customers, with the exception of technology-delivered services such as communication and electricity. The customer is part of the service pro- cess during production and may introduce inefficiencies, but at the same time sales opportunities.

• Back office services can be buffered from the uncertainty introduced by customers and therefore can be designed for maximum efficiency.

• Services consist of bundles of services and goods, including explicit services, implicit services, and facilitating goods. It is important to provide the right mix of these three elements and not overlook the psychological (implicit) compo- nent of service.

1 Julie Schlosse r, " Teacher's Bet," Fortune, March 8, 2004, pp. 158-163.

106 Part Two Process Design

Key Terms

• The service delivery system matrix is formed by juxtaposing customer ,,-ar ~ and needs in terms of customizing a service against the service delivery sys The combination of service package and service process design elements re in three main service types: customer-routed services, co-routed services, a:-· provider-routed services. Each of these service types has different requireme:-::. for operations managers to meet.

• During service delivery, customer contact can be either high or low, dep en -- ing on the service to be provided and the service deFvery system desi. Generally, high-contact services are performed in the front office; low-conta.:-· services are performed away from the customer in the back office. In adG.·- tion to contact, the degree of uncertainty introduced by the customer ' · have an impact on efficiency within the service system.

• When services are not delivered as promised, the firm should provide quic.. and helpful service recovery. A service guarantee can be offered to ensure tlE.- the customer understands what is promised and what constitutes an error ::- service delivery. The service guarantee provides a way for operations to knor exactly what is required.

• Technology allows the automation of services for greater efficiency. This ca:- result in lower costs and more uniform quality. A contrasting view is to con- sider employees to be the source of firm capabilities and consider technology - support mechanism for employee work

• Service outsourcing and offshoring are increasing trends that present oppor- tunities and challenges. Attention to process and people issues is essential in outsourcing. Offshoring often is used as a mechanism to obtain talent fro m many global locations. Both practices require significant coordination within the service supply chain.

• The service-profit chain indicates how customer satisfaction and loyalty. along with employee satisfaction, employee retention, and productivity, are important to profitability. Employee selection, job design, workplace design. training, support tools, and rewards for employees are important drivers of the chain. Any weak link in the chain can reduce the level of customer loyalty and profitability.

Intangibility 88 Simultaneous production

and consumption 88 Front office 88 Back office 88 Service-product

bundle 89 Explicit services 89 Implicit services 89 Facilitating goods 89 Service delivery system

matrix 91 Operations service

system 91

Customer-routed services 91

Co-routed services 91 Provider-routed

services 92 Self-service 93 Customer

contact 94 Customer-introduced

variability 95 Service recovery 96 Service guarantee 97 Production-line

approach 100

Outsourcing of services 101

Offshoring 101 Service-profit

chain 102 Customer loyalty 103 External service

value 103 Productive

employees 104 Employee retention 104 Satisfied employees 104 Internal service

quality 104