Managing Productivity

Rising costs put service firms under great pressure to increase service productivity. The problem is particularly acute where the service is labour intensive. Productivity can be improved in several ways:

1. The service providers can train current employees better, or they can hire new ones who will work harder or more skilfully for the s;ame pay,

2. The service providers can increase the quantity of their service by giving up some quality (e.g. doctors having to handle more patients by giving less time to each).

3. The provider can 'industrialize the service' by adding equipment and standardizing production, as in McDonald's production-line approach to fast-food retailing. Commercial dishwashing, jumbo jets and multiple-unit einemas (i.e. cincplexes and megaplexes) all represent the use of technological advances to increase service output.

4. Service providers can also increase productivity by designing more effective services. How-to-quit-smoking clinics and exercise recommendations may reduce the need for expensive medical services later on.

5. Providers can also give customers incentives to substitute company labour with their own labour. For example, business firms that sort their own mail before delivering it to the post office pay lower postal rates. Self-service restaurants are another case in point. Pay-and-display facilities in car parks alleviate the need to employ attendants (as well as reducing waiting time).

6. Service providers that have to deal with fluctuating demand can increase productivity by increasing flexibility anil reshaping demand. Supplier flexibility - the ability to improve supply capacity - is increased by using part-time workers and shared facilities, and by rescheduling peak-time facilities and work. Demand movements are reshaped by differential pricing, reservation systems and stimulating non-peak usage.

However, companies must avoid pushing productivity so hard that doing so reduces perceived quality. Some productivity steps help standardize quality, increasing customer satisfaction. But other productivity steps lead to too much standardization and can rob consumers of a customized service. Attempts to industrialize a service or to cut costs can make a service company more efficient in the short run, but reduce its longer-run ability to innovate, maintain service quality and flexibility, or respond to consumer needs and desires. In some cases, service providers accept reduced productivity in order to create more service differentiation or quality.14

We have looked at strategies for handling the particular marketing problems that service organizations face, given the specific characteristics of services. Importantly, to be successful, service firms must practise internal and interactive marketing, in addition to adopting an external marketing focus. The key lies in management's ability to develop a quality culture and to operation a lize effectively an extended marketing mix that results in superior service differentiation and quality.

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