Service Operations Management (SOM) Strategic Issues What is SOM Strategy? Service Strategy Focus Outsourcing Yield Management Compiled by: Alex J. Ruiz-Torres, Ph.D. From information developed by many.

What is SOM Strategy? Strategy: the methods and plans of action designed to achieve a particular goal. SOM Strategy: the service operations related methods and plans designed to achieve the organization’s goal. Methods and plans related to these operational elements: processes, technologies, human resources, equipment, facilities,…

What is SOM Strategy? The goal is to create differentiation by emphasizing on one or more of the service quality dimensions. Directly related to their market winner – what their selected market (customers) value most. This requires a focus on a particular set of the operational elements.

Service Strategy Focus Goal High Reliability: Best results, highest quality. Hiring the best people. Continuous training. Well defined Standard Operating Procedures (SOPs). Commitment to process quality and measurement. Investing in technology.

Services Strategy Focus Goal Responsiveness: fast speed of interaction/ minimize customer’s waiting time. Ability to increase resources to match demand. Invest on redundant capacity. More workers, equipment and space than normally needed. Focus on process improvements to reduce task times and simplify processes.

Service Strategy Focus Goal Assurance/ Empathy: provide an environment where employees show attention to detail and aim to please the customer, to constantly listen to their needs Hire the right people, Continuous employee training, Reward employees based on their tuning in to customers, …

Service Strategy Focus Goal Customization: give the customer the ability to choose multiple features Design of flexible service products, Attention to changes on customer preferences (keep developing new custom features), Ability to prevent customers from selecting “poorly”

Service Strategy Focus Goal Tangibles: provide facilities and information platforms that are highly attractive to the customer Facilities are updated regularly, Equipment in working order, clean.. Information systems and web platforms that are natural to the user, provide many functionalities, are never down,..

Service Outsourcing Is the process of moving a service type function from being performed internally to being performed externally. An example Law firm ERT had its own accounting department Based on some cost/performance analysis the partners of ERT decided to eliminate the accounting department and have all their accounting activities performed by XYZ accounting firm. The accounting department just got outsourced. http://michaelaltendorf.files.wordpress.com/ 2008/04/ggazette_11_24_04_outsource.jpg

Service Outsourcing Basic principle is that non-core services of the firm are performed by an external organization. Main proposed benefits of outsourcing allows organizations to focus on core competencies, reduce costs, gain access to expertise not available in house, improve quality and increase innovation. Main costs transition process, loss of employee goodwill (those that stay), loss of internal capabilities. Interesting example video: http://www.youtube.com/watch?v=rYaZ57Bn4pQ

Yield Management Many commonly used services engage in the practice of yield management A time / volume based price structure for a product (family of products) Price varies for the same service Customers paid different prices for tickets in the same flight in the same class (for example economy) Airline seats, hotel rooms, and rental cars are prime examples. $701 $861 $277 $550 $392

Yield Management The service is sold at different prices depending on many factors including supply and demand trends, price offered by competitors, units already sold, historical trends, … Currently flight 102 from LAX to Las Vegas of May 22 is sold at 55% (economy section). Last year at this time it was at sold at 25%. Therefore the flight is having higher demand than last year. YM Model : Increase prices.

Yield Management Currently flight 4 from LAX to Washington for June 7 is sold at 45% (economy section). Last year at this time it was sold at 70%. Analysis of other airline capacity and prices on that route indicate oversupply/ lower competitor prices. Therefore it may not sell at the same rate. YM Model: Reduce prices. All this is done automatically based on complex mathematical equations and large datasets.