The Service Delivery System

When talking about our service delivery system and doing the business plan, we have to determine how the service is going to be delivered.  What processes are we going to use to deliver the service?  What is the work force going to be like? What kind of equipment facilities are we going to use, recognizing that we are going to produce the service and deliver it simultaneously?

Using the McDonald’s example, it seems that McDonald’s restaurants have the philosophy that "discretion is the enemy of order".  In simple words:  do not let too many people have discretion or decision making authority.  If there were too many people with decision making authority, there would be no speed and consistency. 

There are only effectively one or two people in a McDonald’s that make decisions.  Everybody else reacts - the buzzer goes to take the burgers out, put french fries in a package with a scoop that is designed to give you just so many French fries in a package, mix something up according to a recipe.  Everyone there is controlled by equipment, standards and timers.  The decision making authority is centralized within one or two experienced people. 

The majority of employees at McDonald’s are very young and most of them have not yet finished high school.  How does this fit with the service concept?  It fits in a sense that McDonald’s serves cheap food. In order to have cheap food, you have to have cheap labour.  By employing young people and probably giving them their first job in life, they are achieving a low cost of production.  McDonald's would logically have a high turnover of staff as employees will move on to university or higher paying jobs.  Consequently they do not give these young people a lot of high level decision making authority.

The service delivery system in a McDonald’s Restaurant is a comprehensive design that includes an efficient layout of facilities and equipment and clearly defined procedures, roles, responsibilities and standards.  Collectively all of these factors produce an efficient system that has predictable outcomes.  That is a key aspect to the service delivery system that ties in with the service concept.  You cannot have speed, consistency and low cost without designing that into the service delivery system. 

Service Delivery System - Key Management Considerations

Intangibility of Services  

o Product life cycles can be short - Unlike manufactured items which tend to a have relatively long product life cycle, service delivery systems often change. In many cases the changes are driven by technological development.  

o It is difficult to build brand loyalty - This is because in service businesses, copying is very easy.  If an airline decides to offer some new feature such as

movies during flights for example, all airlines bring in  movies. If one airline introduces frequent flyer miles, they all must have frequent flyer miles to be competitive.  That is why it is necessary to to be innovative again and again and come out with new service features.  This is why some services can have a very short life cycle.  

o Company reputation is crucial  - Company reputation is crucial in service businesses because consumers are unable to measure with any accuracy the quality of service they are getting.  For example, imagine you have a small business and you want to hire an accountant.  You don't know anything about accounting yourself.  How do you know that the person you want to hire is good at what they do?  One way that you can do this is to ask others.  You quickly get to know those with the best reputations.

Perishability of Services  

o There is no buffer from fluctuations in demand - Due to the characteristics of services, there are no inventories to buffer fluctuations in demand.  If there is an airplane with 100 seats on it leaving at 5 o'clock to fly 1000 kilometers, the output of that plane is 1000 seat kilometers.  If only half of those seats are filled tonight, the sale for the other half of those seats perishes.  Unlike if there were 100 stereo systems in stock today and a sale was held with only 75 were sold, the other 25 still have a potential to be sold tomorrow.  The airline seats sales perish once the airplane takes off, and those same seats for that particular flight can never be sold again.  Services do not have inventories that can be used to buffer the imbalances between the supply of products and the demand for products.  

o Because there is no decoupling of the various stages of production, planning and control can be complex - To use the airline example again, airlines have yield management systems. They actually try to forecast based on past experience how many empty seats there are going to be on every flight.  That is why they have seat sales going on, trying to fill those empty seats.  The other thing that they do not know is how many people are going to make reservations and not show up.  What they do is overbook every flight based on the past experience of no-shows.  If they are wrong then they are going to have some unhappy customers that are going to show up and find out that there are not enough seats even though they made a reservation.  That is a perfect example of how planning and control are so complex when you don't have an inventory to buffer the demand.  You cannot tell the customer that there are no seats and that you will put them in an inventory box  until tomorrow when the flight arrives.  

o The challenge is to fit capacity to demand as best as possible - The challenge then, from both a management a business planning point of view, is to try to fit your capacity to the demand as best as possible.  To the extent you are successful in doing that then the business will be much more successful.

Simultaneity of Services  

o Staff must have both service delivery and marketing skills - The staff must not only be skillful at delivering the service; they must also have marketing skills.  Marketing a service concept and the service delivery system are very closely linked because both  are happening at the same time.  While you are delivering to the customer, you are actually marketing for future business.  When the accountant is giving tax advice, he or she is hoping that the client will ask him/her to do their taxes the next year.  For example, he or she might find the client some good tax shelters and give them good advice on certain actions that could help lower the tax burden. The client would then consider that even though he/she might have paid the accountant $500, the accountant saved him/her $5000. That client would likely go back to the accountant the following year.  

o Since customers must come to the place where the service is provided, each service facility has a limited geographic area it can serve - A restaurant in Montreal would obviously not draw too many people from New York unless they are tourists.  This is a reality of the service business, unlike a manufacturing business where you can produce a product and ship it around the world.  In a service business, unless you are involved in electronic service, which is becoming more pervasive in the economy, it is very difficult to deliver over a distance.  Technology is helping in that regard, especially in the education field.  The traditional sense of education is that many students go to a university of close geographic proximity.  That is why the majority of students that go to UNB are from New Brunswick.  With technology, delivering education over a greater distance is becoming easier.  

o The capacity offering must fit the market, otherwise the service will be unprofitable - Another key thing about simultaneous production and consumption is that balancing capacity with  demand is absolutely crucial to profitability.  As difficult as it is  for air services to balance demand offering, once an airline has a schedule in place, it is committed to a certain number of flights per day in each market. There is a fixed number of seats per flight and each flight has to cover a specific distance.  Once the capacity is committed, the airline has to create business or it is going to be under-utilized.  In any business, if you have excess capacity you may not be profitable.  In a law firm, for example, the number of hours per week to serve clients is finite. Consequently, the ratio of "billable hours" to total hours is of concern.  The lower that ratio is, the greater the risk that the business will not be profitable

Service Levels  "Service Level" refers to the level of explicit and implicit benefits provided to the

consumer from the substantive and peripheral services. This is where the measurement problems come in.  What is level of service? How can we

define that in terms of substantive benefits?  At McDonald’s they throw the food out after so many minutes because it is not hot enough.  That is a service level.  The peripheral

aspect - the atmosphere, the attitude of the employees, their demeanor - are all a part of the service level that they are offering.

The challenge is getting a match between management and consumer perceptions of what the service concept and levels should be.  Following is a  formula that is very important in relation to satisfying customer expectations.  

Satisfaction = Perception - Expectation

This relates what the consumer perceived about the service experience to what their expectation of it had been. "I expected very high quality food.  I expected it to be hot, and to be served in a friendly manner".  Now what was the customers perception?  "Well, my meal was cold, and they dropped things on my table.  The atmosphere was terrible.  The waiter was in a bad mood".  In that case, the perception of the experience was less than the expectation.  You will have negative satisfaction (or dissatisfaction).

Consider the scenario of coming into a service firm, to get your taxes done. Your expectation is that it is going to cost you $500, and you expect to owe $1000 in additional taxes.  You find out, though, that you are going to get a tax refund because the accountant pointed out to you a tax shelter of which you were not aware.  Now your perception is much higher than your expectation and you are highly satisfied with the advice that your accountant gave you.

If a customer perceives that the service received was better than what was expected, the customer will be highly satisfied. The expectations of customers can be raised or lowered through effective marketing communications.

Service Levels - Management and Control

Recruiting the right kind of people - It comes back fundamentally to setting out what your service concept design is and what kind of people skills you need to implement that design.  McDonald's restaurants use inexpensive, young labour to keep the cost of their food products as low as possible.  The service delivery system is designed such that young workers can function effectively despite their lack of experience in providing service. 

 

Training on what good service is and how to deliver it - You have to train your people to deliver good service based on your service concept.  What do you want to emphasize and how do you want them to deliver it?

 

Incentives and rewards to encourage the right kind of behavior - People behave and feel differently from one hour to the next.  Given the right kind of incentives and rewards,

an organization can encourage the right kind of employee behaviour.  These incentives could be monetary, but there are many different types.  An example is positive reinforcement: "Mary, I saw the way that you served that customer and that was excellent".  This would be positive reinforcement given because you have seen an employee act exactly the way that you want.  If it is not proper service to a customer, you would take them aside in a calm moment and bring the deficiency to their attention.  You give them specific feedback that is fair and objective, and feedback about which they can do something. In other words, you coach them.  

Monitoring quality of service - Another important aspect of managing service level is monitoring the quality of service.  In spite of all the measurement difficulties, most service businesses ask customers to fill out questionnaires to rate their service in different categories.  You want to find out whether the customer is getting what they expect.  

Appropriate use of technology - Appropriate use of technology is another important way to control service levels.  Remember the day when we waited in line for ten to fifteen minutes at the bank on payday to deposit our cheque?  The bank introduced automated teller technology, and later online banking.  These are appropriate uses of technology to redistribute the demand.  Instead of everybody showing up at the bank on payday, people can do their own banking any time of day, any day of the week.  This is an example of appropriate use of technology to deliver a higher level of service.

Service Levels - Management and Control

Recruiting the right kind of people - It comes back fundamentally to setting out what your service concept design is and what kind of people skills you need to implement that design.  McDonald's restaurants use inexpensive, young labour to keep the cost of their food products as low as possible.  The service delivery system is designed such that young workers can function effectively despite their lack of experience in providing service. 

 

Training on what good service is and how to deliver it - You have to train your people to deliver good service based on your service concept.  What do you want to emphasize and how do you want them to deliver it?

 

Incentives and rewards to encourage the right kind of behavior - People behave and feel differently from one hour to the next.  Given the right kind of incentives and rewards, an organization can encourage the right kind of employee behaviour.  These incentives could be monetary, but there are many different types.  An example is positive reinforcement: "Mary, I saw the way that you served that customer and that was excellent".  This would be positive reinforcement given because you have seen an employee act exactly the way that you want.  If it is not proper service to a customer, you

would take them aside in a calm moment and bring the deficiency to their attention.  You give them specific feedback that is fair and objective, and feedback about which they can do something. In other words, you coach them.  

Monitoring quality of service - Another important aspect of managing service level is monitoring the quality of service.  In spite of all the measurement difficulties, most service businesses ask customers to fill out questionnaires to rate their service in different categories.  You want to find out whether the customer is getting what they expect.  

Appropriate use of technology - Appropriate use of technology is another important way to control service levels.  Remember the day when we waited in line for ten to fifteen minutes at the bank on payday to deposit our cheque?  The bank introduced automated teller technology, and later online banking.  These are appropriate uses of technology to redistribute the demand.  Instead of everybody showing up at the bank on payday, people can do their own banking any time of day, any day of the week.  This is an example of appropriate use of technology to deliver a higher level of service.