Strategies for Globalizing Service Operations By Curtis P. McLaughlin James A. Fitzimmons Presented by David Lipnisky Article 17

Objective o As foreign competition in the service sector increases, domestic services must develop a global service strategy. o Develop a methodology to assist service managers in developing strategies for entering and competing in global markets. Article 17

Objective cont. o To develop a strategy consider the following questions: What are the factors that we can use to classify services in terms of their potential for moving globally?  Service Globalization Factors. How do these factors translate into strategies for the globalization of specific services?  Globalization Strategy. Article 17

Previous Research o Chase (1978), Haywood-Farmer (1988) and Schmenner (1986) Most useful dimensions to classify service operations:  Consumer involvement and customization.  Complexity of inputs and outputs.  Intensity of labor. Article 17

Previous Research o McLaughlin (1992) suggested adding five key operations issues of international services: Level of cultural adaptation. Impact of telecommunications. Potential for unbundling service components. Approaches to teamwork. Re-engineering opportunities. Article 17

Factors and Sources for McLaughlin (1992) Article 17

Previous Research o Apte and Mason (1992) Customer contact and information intensity are the two primary dimensions that determine which service operations go overseas.  Operations research, computer programming ◦ Prime examples due to little customer interaction, information and labor intensity. Cultural diversity can increase creativity  May result in problems meeting requirements Article 17

Previous Research o Reich (1991) Divide workers into three types  (1) Routine producers  (2) In-person servers  (3) Symbolic analysts Routine producers (mfg. labor) replaced by automation  "Routine producers and in-person servers are loath to do anything that might deter symbolic analysts from coming to their city or region, or even their nation;...The lower, less mobile four-fifths of the population is prepared to provide symbolic analysts with generous inducements to come or to stay" Labor market pressures push workers from manufacturing to service industries. Article 17

Previous Research o Wilson (1992) Development of back-office operations of US firms in Asia, Europe, and the Caribbean Found that routine service work could be unbundled and broken into simpler functions to facilitate the use of cheaper, more specialized labor. Provided managers a new approach to break up back-office tasks for outsourcing. Article 17

Service Globalization Factors o Elements of service operations that need to be considered when selecting a process as a possible candidate for outsourcing. o For service operations consider the level of the following 6 factors: Customer Contact (front-room) Customization (front/back-room) Complexity (back-room) Information Intensity (back-room) Cultural Adaptation (front/back-room) Labor Intensity (back-room) Article 17

Customer Contact o Front-room operations based. o Contact personnel speak or trained in native language. o For success, the service must be adapted to the culture as well. o Example: Euro Disney Main changes were both French/English used and adaptation to the French culture. The major challenge was training the “independently- minded” French employees to act out the roles of Disney characters and perform their duties in a courteous manner. o Adapting the service contact to native culture, one of the more challenging tasks for service managers. Article 17

Customization o Language and distance create barriers to effective communication, which detracts from ability to customize service to customer needs. o Coopers & Lybrand Opened an office in Hungary, found clients to be more comfortable working with Hungarian auditors. o Customer contact elements also effect customization. o Front/back-room oriented. Article 17

Complexity o Globalization of back-room tasks fall under two categories: Make existing work routine such as data entry. Technical but mundane work such as reprogramming or file expansion that can lead to more complex tasks. o Workers in other countries Are often eager for such jobs and are content being compensated according to the local job market. Often approach work with different mindset resulting in more motivation and creativity. When workers have more motivation and creativity they can take on more complex tasks which can lead to increased outsourcing of back- room activities. (Like training new employees.) Article 17

Information Intensity o Once information is digitalized, it can be globalized. o International communication using satellites make up for poor infrastructures. o Telecommunications and air freight have opened up many information-intensive services to globalization. o Example: Stock and financial markets, consulting service. Article 17

Cultural Adaptation o Adapt services to customer culture or deliver service that built the reputation in the home country? Will changes still align with service strategy and mission? Realign strategy? o Both front and back-room activities can be impacted. Culture can effect customer service and scheduling. Culture and economy can effect back-room tasks, scheduling, and employee compensation. o Small town workers accept lower compensation to avoid disrupting the fabric of community. Culture can be individual or group oriented. Article 17

Labor Intensity o Seek less-expensive, well-educated labor. o Labor-intensive tasks can be supported by major investment in communication and computer systems to transfer information. o Labor rates in some countries are fractions of domestic labor rates. o Labor and time intensive activities are often the prime candidates for globalizing. Article 17

Other Considerations o Technology is improving worldwide. o Distance is becoming less of a factor. o Governments are becoming aware of global market changes and offer incentives for businesses to provide work. o Decreasing technical and legal restrictions. Article 17

Taking Services Global o Five basic Globalization Strategies (1) Multi-country expansion (2) Importing customers (3) Following your customers (4) Service unbundling (5) Beating the clock o These major strategies have been used by companies that have entered global markets. o The Globalization Strategies are compared with the Service Globalization factors in a matrix to identify strengths and challenges for each strategy and factor. Displayed in Table II Article 17

Taking Services Global o These strategies are not all mutually exclusive. o Strategies can be combined such as multi-country expansion with beating the clock. o Table II contains a summary of key opportunities and potential problems that each (6) service globalization factor (left) contributes to each (5) global service strategy (top). Article 17

Taking Services Global

Multi-Country Expansion o Exporting a successful service to another country without modification can sell “a country’s cultural experience.” McDonald’s Benihana o Duplicating a service worldwide is easiest accomplished if business is based on routine services. (McDonald’s) Article 17

Multi-Country Expansion o Some modifications must be made to better accommodate foreign markets. McDonald’s in Germany serving Beer  McHefeweizen anyone? Federal Express in Spain  Midday Siesta extends business and pickup hours later into evening. o The level of cultural adaptation determines if a service will succeed or fail. Article 17

Importing Customers o Customers come to location of service because of unique features: Yosemite, Hawaii, Yellowstone Disneyland/World Universities, Museums o Provide extended services for lodging, student loans, discounted transportation. o Works best when customers are willing to travel long distances or stay for extended amounts of time. o How can your service make it easier and more enjoyable for you customers? o Must also adapt to customer cultures. Article 17

Follow Your Customers o Services can follow previously global customers around the world. Any additional foreign customers acquired while serving the primary customer adds opportunity for growth. o This leaves the service manager with interesting choices: Design the service to follow customers and their needs? Design it to adapt to the local culture? Or make a compromise between the two, hoping to have a successful straddle? Article 17

Follow Your Customers o Straddles may not be very successful due to increased variation or complexity of the service. We know what variation leads to: quality and consistency problems. o Elements also fall under Multi-Country Expansion. Article 17

Service Unbundling o Break-up elements of service processes to determine what can be contracted out. o Efficiency and labor savings can result from focusing on specific back-room tasks. o Labor-intensity of a process is also a factor. o Managers need to identify the parts of the process that are physical from those that are informational to make service unbundling work. Article 17

Beating The Clock o The competitive advantage gained by: Bypassing the constraints of the clock. Constraints of domestic time zones. Differing time-based domestic work rules and regulations. 24 hour operations. Result in economies of operation. Provide better access for foreign and domestic customers. Support time-based competition in operations. Add to the creativity available in the process without slowing it down. Article 17

Beating The Clock o Analyze service operations to determine strategy: Defensive Strategy:  Involves forming strategic alliances in other time zones.  Help support and maintain operations. Offensive Strategy:  Activities might involve moving to, or modifying, operations in non- domestic time zones to tap new markets or improving existing ones.  More competition and growth oriented. o Operations infrastructure will need to improve: Increased coordination and reliability between time zones. Additional training. Methods of operation. Communications infrastructure. Article 17

Conclusion o Movement of information is easier and less costly than the movement of goods. o Cultural adaptation will prove to be the biggest challenge for the front-room operations. o Economic and workforce factors in various countries will increase opportunities. o Service operations managers should use these various dimensions to analyze their own process. o From analysis a globalization strategy can be formed. Article 17

Thank You o Questions?