Productivity in Service Organisations

Content

Executive Summary

1. Introduction

2. Definition of productivity

3. Quantity and quality aspects of service productivity

4. Customer satisfaction

5. Tools to measure productivity in the service industry

5.1. Input/output ratios

5.2. Work Measurement Methods

5.3. Quality Plus Techniques

6. Problems with measuring productivity

7. Improving service productivity

8. Strategies to improve productivity

8.1. Operations driven strategies

8.2. Customer driven strategies

9. Example : Improving productivity in the services sector

10. Conclusion

11. References

Executive summary

The purpose of this paper is to describe the concept of productivity, and investigate ways in which productivity can be improved in service organisations.

Productivity is defined by various authors as the ratio between output and input. Productivity measures the amount of output produced relative to the amount of input. Productivity requires both effectiveness and efficiency. The combination of these two in the service process, leads to higher productivity.

Productivity in the services sector has a quantity and quality aspect. Quantity includes material, labour and capital, as well as having enough resources in order to match demand for the service. Quality of services includes a humanistic quality approach (staff, leadership and culture of the business), as well as a technical approach (operations management and statistics). The output in the form of quality is what the customer actually pays for, while the input includes tangible and intangible elements. Customers are inclined to give priority to service quality instead of quantity.

Customer satisfaction indicates the organisation's performance due to links to behavioural and economic consequences beneficial to the organisation. A superior level of customer satisfaction, lowers the cost of the company and improves productivity.

Three tools used to measure productivity in the service industry are input/output ratios, work measurement tools and quality plus techniques. The intangibility aspects of services, make measurement of service productivity and service quality a difficult task.

Management should ask themselves strategic questions when looking for ways to improve productivity. These should include questions about ways that consumers can contribute to higher productivity, as well as how automated tasks, previously undertaken by labour, can improve productivity.

Strategies to improve productivity include operations and customer driven strategies. Operations driven strategies include control of costs, training of staff and service process redesign. It also includes the upgrading of equipment and systems. Productivity is dependent on fast developing technologies and automation, where customers can transact using technology.

Customer driven strategies include strategies to get the customer more involved in the production process. Customers should be encouraged to use third parties to improve productivity. Companies should aim to change the timing of customer demand away from peak periods to times of lower demand.

Two examples of improvement in the services sector are discussed. One refers to a golf club and the other to banking services, and ways that consumers can assist in improving the productivity of these service organisations.

It is concluded that to improve productivity, service organisations should invest in new technologies to reduce the labour element of input, and include customers in the service delivery system.

1. Introduction

Service organisations are recognised as the largest and fastest-growing segment of the economy in the world. Johnston and Jones (2004) states, that despite the importance of productivity management in service organisations, it is surprising that there is relatively little empirical research on this topic.

The purpose of this paper is to investigate the ways in which productivity can be improved in the services sector.

2. Definition of productivity

The term of productivity is economically defined as the ratio between output and input (Mohanty, 1998). Lovelock (1979) states that productivity measures the amount of output produced relative to the amount of input. Improvement of productivity means an improvement in the ratio of outputs to inputs.

Productivity requires both effectiveness and efficiency. (Sumanth, 1998). Sink (1998) describes effectiveness as 'doing the right things', while efficiency means 'doing things right'.

Efficiency is linked to the utilisation of resources and it mainly influences the input of the productivity ratio. Efficiency can be seen as the minimum resource level that is theoretically required to run the desired operations in a given system, compared to how much resources are actually used. For example, in a law firm, you need at least a lawyer, typist and computer, to do legal work.

Effectiveness is a more comprehensive term, which is linked to the creation of value for the customer, and affects the output of the productivity ratio.

The combination of high values of both efficiency and effectiveness in the service process, leads to higher productivity values. The purpose is to achieve a given result with minimal resources, or to get the maximum result with a given set of resources (Vourinen et al, 1998).

3. Quantity and quality aspect of service productivity.

Jarvinen et al (1996) define productivity of a service operation as the ability of the organisation to use inputs for providing services with quality matching the expectations of the customers. He states that both the quantity and quality of service sector