Service productivity
The basic productivity challenge for service businesses is explained by Professor Grönroos in the video below.
Essentially Grönroos is saying that if services implement manufacturing models to service process delivery performance is negatively impacted (see Grönroos Figures 9.1 to 9.3).
Cost-cutting approaches are normal in manufacturing processes but if taken in service businesses then eventually profit will go down. Why? In manufacturing or product logic cost-cutting shouldn't decrease profitability (say if linked to the uptake of technology or getting rid of excess bureaucracy). But, if using service logic, if processes are constantly cut then perceptions of quality will eventually go down. People will notice that there is less help available, there are longer waiting times, etc. and so revenue will go down. Costs do go down of course but profitability also goes down. The consequence for a service business is that they should know where their breaking point is. But this breaking point is difficult to discern so managers have to be very careful to watch out for when profits start to go down as this is a strong signal service logic is not operating.
As an alternative to using a product logic, Grönroos argues for service logic in increasing productivity. This is explained in more detail in Figure 9.4 below. One needs to understand the actual process of creating value in order to understand where costs can and can't be cut, and where investment should be made to increase productivity. So for example, understanding what is a back-office process that can be automated. Or understanding what front of office self-help activities might be able to be pushed toward the customer that they could get value from (e.g. online banking and the ability to manipulate money between accounts).
For service businesses, the focus is always on the relationship with the customer. If cost-cutting impacts negatively on this relationship then the service logic which should underpin the relationship is at risk. Of course, cost-cutting is sometimes desirable and advisable, but Grönroos argues that the relationship should underpin all decision-making and this is shown in Figure 9.6 below. Productivity is improved in this model by investing in the relationship's continuity by gaining mutual value out of the relationship. He links this to learning as these relationships are always dynamic and growing.
The basic productivity challenge for service businesses is explained by Professor Grönroos in the video below.
Essentially Grönroos is saying that if services implement manufacturing models to service process delivery performance is negatively impacted (see Grönroos Figures 9.1 to 9.3).
Cost-cutting approaches are normal in manufacturing processes but if taken in service businesses then eventually profit will go down. Why? In manufacturing or product logic cost-cutting shouldn't decrease profitability (say if linked to the uptake of technology or getting rid of excess bureaucracy). But, if using service logic, if processes are constantly cut then perceptions of quality will eventually go down. People will notice that there is less help available, there are longer waiting times, etc. and so revenue will go down. Costs do go down of course but profitability also goes down. The consequence for a service business is that they should know where their breaking point is. But this breaking point is difficult to discern so managers have to be very careful to watch out for when profits start to go down as this is a strong signal service logic is not operating.
As an alternative to using a product logic, Grönroos argues for service logic in increasing productivity. This is explained in more detail in Figure 9.4 below. One needs to understand the actual process of creating value in order to understand where costs can and can't be cut, and where investment should be made to increase productivity. So for example, understanding what is a back-office process that can be automated. Or understanding what front of office self-help activities might be able to be pushed toward the customer that they could get value from (e.g. online banking and the ability to manipulate money between accounts).
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| Grönroos Figure 9.4 |
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| Grönroos Figure 9.6 |
Reference
Grönroos, C. (2010). Service management and marketing: Customer management in service competition. Chichester: John Wiley and Sons Ltd.
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