Breaking the TradeOff Between Efficiency and Service Manufacturing

Breaking the Trade-Off Between Efficiency and Service • Manufacturing Environment: Variability MUST be eliminated • Services Environment: All variability CANNOT be eliminated – Customers measure quality of service by how their variability is accommodated – Impossible since customers are an input • Reality: Customers introduce variability but complain about inconsistency 1

Five Types of Customer Induced Variability 1. Arrival Variability • • Customers request service at different times Do not always want service when convenient for company 2. Request Variability • Represented by substitutions/customizations 2

Five Types of Variability (Cont’d) 3. Capability Variability • Extent of customer knowledge, skill, etc. 4. Effort Variability • Degree of customer willingness 5. Subjective Preference Variability • Customers have different opinions or preferences as to how they evaluate service 3

Reduction Strategy • Classic reduction strategy: the restaurant menu – By their nature a way to constrain variability – For customers to order “off menu” is part of a premier dining experience – When the restaurant does not accommodate special orders: • They reduce the complexity of the operating environment • May diminish service quality • Companies that use the reduction strategy tend to attract customers, who are willing to trade-off an excellent service experience for low prices 4

Uncompromised Reduction • Companies can reduce the impact of variability by targeting customers on the basis of variability type • e. g. , colleges choose students whose test scores fall within a narrow band, therefore the school does not have to support more than one curriculum • Companies can benefit from reduced variability without requiring customers to adjust 5

Accommodation Strategies • Involves experienced employees to compensate for the variations among customers • Employees are making adaptations to “protect” the customer from making their own adjustments • Costs more and force the company to bear the brunt of the variability • Only high-end companies can command such a premium • Success of the strategy hinges on the company’s ability to persuade customers to pay more to cover the added expenses 6

Low-Cost Accommodation • Companies are persuading customers to serve themselves • The service experience varies with customers’ capability and effort • Effective for high arrivals or request variability • Customers need to feel compensated in some way: low prices, greater customization 7

Matrix of Classic Trade-Off • Managing customer – introduced variability does not have to come down to a stark trade-off between cost and quality • Other options exist – those above the diagonal which let companies offer a high level of accommodation at low cost or reduced variability without damaging the service experience 8

Solutions in Practice • Arrival and Request Variability – Dell • New products would demand responsive service • Options: reduce variability or accommodate variability • Solution: – Third Party Service – Risk – Successful Strategy: low cost accommodation 9

Solutions in Practice (Cont’d) • Capability Variability – Starbucks • Customers have many options • Solution: – Teach customers proper way to order – Successful Strategy: uncompromised reduction • Effort Variability • Instrumental Means – Zipcar, daycare center, video rentals • Normative Means – Ebay Strategy: Changing customers’ behavior 10

Solutions in Practice (Cont’d) • Subjective Preference Variability – Tiffany & Company • Crowded stores • Solution: – Beepers – Not successful – Southwest Airlines • Chaotic boarding process • Solution: – Experimental assigning seats – Not successful 11

Steps in Managing Customer Behavior • Diagnose the problem – Must understand the roof cause of the problem • Design a mutually beneficial operating role for customers • Test and Improve on the solution 12