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.