abstract number: 020-0438 a case based study of …rohit verma had carried out an empirical study...

Abstract Number: 020-0438

Title: A Case Based Study of Shifting of Efficiency Frontier in Indian Services Industry

Author:

Sivakumar Srinivasan

Final Year Student, Post Graduate Program in Management

Indian Institute of Management (IIM), Bangalore, India

[email protected]

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Abstract

Service Economy is a booming sector all over the world and constitutes roughly 64% of the World’s

GDP. In a developing country like India, services constitute about 55% of the GDP. With such a

growth and competitive choice, customers are increasingly demanding higher levels of service at a

lower cost. Consequently the traditional trade-off between Operational Excellence and Customer

Intimacy as a strategic choice in services sector has started to erode over time. Changes in the

external context are driving a continuous evolution in the operational configuration of service

systems that can be visualized as a response to the “Shift of the efficiency frontier” explained by

Hayes and Pisano. Service firms attain their desired operational configuration by a combination of

Structural and Infrastructural elements (levers). Schmenner has published a typology of service

systems and the set of Management challenges that go with it. Rohit Verma carried out an empirical

study to validate this model and found some non-corroborating evidences. This paper explains these

discrepancies with the aid of theory of shift in efficiency frontier. In this context, this paper also

makes certain propositions about the levers that can be used and the management response required

from service businesses (of various quadrants in Schmenner’s matrix) to manage the shift. These

propositions are grouped in a 2x2 typology based on the current strategic focus (efficiency or

effectiveness focus) of the firms and the direction of the intended strategic shift (improving

efficiency or effectiveness) viz. Miners, Tunnelers, Landers and Floaters. These propositions have

been validated by adopting a Case based research methodology.

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1 INTRODUCTION

Service Economy is booming across the world and constitutes roughly 64% of World’s GDP. In

a developing country like India, it constitutes 55% of the GDP. Hence worldwide there is a lot of

focus on management research pertaining to the strategy & management of service systems.

Pure Services are characterized by the 4 fundamental principles of Intangibility of the underlying

offering, Heterogeneity in the services provided, Simultaneity requirement of consumption &

production to coexist and Perishability with respect to storage and inventories. So while creating

a Manufacturing Strategy, one has the advantage of the logical buffer that exists between

manufacturing operations and the customer. This flexibility allows Managers to create

independent functional strategies that are aligned to the overall business strategy. But in service

systems, several business processes crisscross between different traditional functions of an

organization and there is a stronger need to define an integrated service operations strategy.

Similarly when designing service systems, one cannot limit his concern on how to reach the

customers, but also about the nature of interaction the customer needs to have with the service

delivery system & how exactly the service will be delivered. [1]

Traditional Marketing Literature says that there are two basic competitive strategies an

organization can follow to compete in the market viz. Cost leadership and differentiation.

According to Value discipline theory of marketing strategy, there are 3 differentiation strategies

i.e. Product Leadership, Customer Intimacy and Operational Excellence. In the service industry,

product leadership is not always practical as a strategy, and hence majority of firms strategize

mainly on Operational Excellence (competitive cost and value for money offerings) or Customer

Intimacy (superior personalization, contextualization and integration with the customer). Much

of the contemporary literature on Service Operations Strategy published in the nineties assumed

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these strategic choices to be bipolar and urged firms to make a strategic choice between these

two disciplines and adopt an appropriate operational configuration.

However this traditional trade-off between Operational Excellence and Customer

Intimacy as a “Choice” has started to erode over time. Increasingly customers are demanding

higher levels of Service at a Lower Cost. This continuous change of customer expectations in the

external environment poses a significant challenge to service firms. Consequently it is becoming

increasingly necessary for firms to continuously improve both their levels of efficiency and

effectiveness in a concurrent manner to stay competitive. This change can be visualized as the

continuous “Shift of the efficiency frontier” in the Hayes and Pisano [5] Cost vs. Process

Flexibility chart. Service firms attain their desired configuration by a combination of Structural

and Infrastructural elements (levers). As this shift happens, operational configurations have to be

continuously enhanced and refined, and structural and infrastructural levers have to be exploited

in a unique combination to respond to the needs of the marketplace.

Schmenner in his pioneering work in 1986 [2] published a typology of service systems

and the Management challenges that go with it. This model has been critically reviewed by

researchers all over the world, and the revision made by Schmenner in 2006 addresses most of

the concerns raised. Rohit Verma had carried out an empirical study [4] to validate Schmenner’s

model and found some non-corroborating evidences. This paper explains the reason for these

discrepancies with the aid of theory of shift in efficiency frontier put forth by Hayes & Pisano.

In this context, this paper also makes certain propositions about the levers (Structural and

Infrastructural elements that make up the operational configuration of a service system) that can

be used and the management response required from service businesses of various quadrants in

Schmenner’s matrix [2] to manage this shift. These propositions are grouped in a 2x2 matrix

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format based on the current strategic focus (efficiency or effectiveness focus) of the firms and

the direction of the intended strategic shift (improving efficiency or effectiveness) viz. Miners,

Tunnelers, Landers and Floaters. These propositions have been validated by adopting a Case

based research methodology.

2 LITERATURE REVIEW

This section provides a brief outline of Schmenner’s Typology model of service systems and the

Management challenges that were identified. This section also discusses the empirical study

carried out by Rohit Verma and the non-corroborating evidences that were found against

Schmenner’s model.

2.1 Schmenner’s Model

According to McLaughlin and Pannesi [3] most of the mixed service firms can decouple their

service delivery systems into Back-office operations and Front-office operations and design their

operational configurations individually to serve different service objectives. The key strategic

dimensions are Level of Divergence, Level of Complexity and Degree of Customer Contact [1].

Once these strategic choices are made, configuration of service delivery systems can

subsequently be designed by carefully choosing the underlying service elements (i.e. both

structural and infrastructural elements) to fit the strategy [1].

One of the most popular service typology models is Schmenner’s model originally

published in 1986. [3] Schmenner’s model is a 2x2 matrix that has Level of Customer Interaction

& customization combined in a single dimension on one axis and Level of Relative Labour

Intensity on the other (which is the proportion of labour cost vis-à-vis the Plant and Equipment

cost). Accordingly this model characterizes services into 4 quadrants as shown in Figure-1

below. Schmenner also identified 22 Management challenges for the firms in various quadrants.

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Schmenner’s model is akin to the famous Hayes and Wheelwright’s Product-Process Matrix

model. Here also, one corner represents process standardization & scale, and the other corner

represents customization & variety. According to Schmenner although companies can

technically choose any position within their respective quadrant, all firms aspire to move towards

the diagonal of the matrix, so that they can be “efficient” for their chosen configuration.

Schmenner’s paper has since been challenged by many authors due to the limitations of

this model. In response to the challenges made during the subsequent decade, Schmenner revised

his model and published a better version in 2006; which is schematically shown in Figure-1.

This model had a change of axes with Degree of Variation in service (Divergence) as the X-axis

and Relative throughput time (a loose representation of productivity of the service delivery

system) as the Y-axis. This change of axes addresses one of the major grievances fellow

researchers had with the earlier model. This new model allows service firms from a particular

industry not to get tight-boxed into a single quadrant, but choose different configurations in

different quadrants depending on the strategic intent. However Schmenner did not make any

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changes to the 22 Management challenges earlier identified despite the non-corroborating

evidences found during Rohit Verma’s empirical study.

Although Schmenner’s revised model has

immense utility in understanding the nature of service

systems and the general set of management challenges

service firms of a particular quadrant need to cope

with; there is an additional limitation that it does not

take into account the dynamically evolving nature of

operational configurations of the service businesses.

The assumption of stable axes (and hence the stable

set of associated management challenges) is not often

observed to be the case with service businesses.

2.2 Rohit Verma’s Empirical Study

Rohit Verma carried out an empirical study [4] of diverse service businesses to validate the

management challenges identified by Schmenner. He found corroboration (with statistical

significance) for only 4 out of the 22 challenges identified by Schmenner, and also found certain

contrary behaviours that were mapped to another quadrant as per Schmenner’s model. For

example, Cost Management was identified by Schmenner as a challenge for High Customer

interaction & customization organizations, but Rohit Verma observed it in Low Labour intensity

organizations. Similarly managing Standard operating procedures and rigid hierarchy was

identified as a challenge for low customer interaction & customization organizations by

Schmenner, but Rohit Verma observed it in Low Labour intensity organizations.

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The non-corroborating behaviour between Schmenner’s model and Rohit Verma’s empirical

study can be explained partially as a limitation of the design of the empirical study, because it

does not appear to delineate between management challenges posed by the current configuration

and the emergent one; the organization is moving towards. With reference to the Efficiency

Frontier Theory put forth by Hayes and Pisano [5], they assert that “strategic choice is important

as ever. Rather than guiding the trade-offs between two static dimensions of Cost and Flexibility,

companies will make dynamic tradeoffs through the selection, development and exploitation of

superior capabilities”. So accordingly it can be stated that, successful firms from any quadrant

of Schmenner’s matrix, positioned on the efficiency frontier must be continuously exercising this

strategic choice, and dynamically responding with changes to their operational configuration.

Refer Figure-2 for the Hayes & Pisano Efficiency frontier curve.

In summary only when firms are stable and positioned on the efficiency frontier

Schmenner’s proposition will apply. On the contrary in the real-world, firms are continuously

exercising this dynamic strategic choice and are “on an eternal migration course” towards their

strategic destination; which is the context of Rohit Verma’s empirical study. Although both their

findings are accurate in the appropriate applicable contexts, the concept of shift in the efficiency

frontier is the plausible explanation connecting them.

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3 ANALYSIS & IMPLICATIONS

In light of the Efficiency Frontier theory put forth by Hayes & Pisano, if the findings from Rohit

Verma’s empirical study are reinterpreted against the original propositions made by Schmenner,

then some interesting insights can be derived [Refer Box-1 for details]. It can be observed that

firms are displaying not only diagonal seeking behaviour, but also trying to use structural levers

to move leftwards and upwards and infrastructural levers to move rightwards and downwards in

Schmenner’s matrix.

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The movements thus observed in

Box-1 are pictorially represented in

the Figure-3 on Schmenner’s matrix.

The Green arrows represent the usage

of Infrastructural levers and the

Purple ones on the usage of Structural

levers. This entire migration process

can be visualized as an interaction of

two complex forces. One force uses

Structural levers to shift the

operational configuration both leftwards and upwards aiming to improve the efficiency, and the

other Counteractive force uses Infrastructural levers to

shift the operational configuration both rightwards and

downwards towards improving effectiveness of

service delivery. The consequence of the resultant

force can be “loosely” visualized to be a 3 dimension

spiral (with a non-coaxial axis) that takes a firm to an

alternate configuration on Schmenner’s matrix,

depending on the strategic choice made by the firm. A

schematic representation of these forces and its

resultant shift in the operational configuration of the firm is shown in Figure-4.

The Shift in the Efficiency Frontier represented pictorially in Figure-5 provides a Broad

Range competitor firm in Point-A, a continuum of possibilities to take, with idealistic positions

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of B and C. Similarly for a Specialist firm positioned at Point-C, it provides a continuum of

possibilities of move with idealistic positions being C and E. This resultant shift is pictorially

represented in Schmenner’s model adjacent to it on Figure-5.

In summary it can be stated that service firms in all the 4 quadrants experience this

migration and the magnitude of the shift in both X and Y axes is a result of the strategic choices

made by the firm on the proportion of structural and infrastructural levers to be deployed. As

rightly identified by Metters and Vargas [7] in their paper on decoupling of services, Technology

is an ambivalent lever and can help in movement on any direction depending on the context of its

application.

4 THE HYPOTHESES

For successful organizations, especially those that operate on the efficiency frontier and are

continuously responding to this shift, the Management challenges faced by them are contributed

both by the need to prevent the existing configuration from collapsing during the transition, and

the drive to transform into the emergent configuration in order to stay competitive and

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successful. Similarly the role of structural and infrastructural levers has been discussed in

Section-3. In context of these two aspects, the following propositions can be hypothesized.

1. Hypothesis-1 Efficiency focused configurations have a relatively higher degree of

reliance on Structural elements, while Effectiveness focused configurations have a relatively

higher degree of reliance on Infrastructural elements; in the infinite continuum of operational

configurations a firm can take by virtue of its strategic choice. The exact proportion of these

elements is a consequence of the strategic choice exercised by the firm to attain a desired

position on the efficiency frontier.

2. Hypothesis-2 With the continuous shift of Efficiency Frontier, firms use a unique

combination of structural levers (to move leftward and upward – lower divergence & lower

throughput time) and infrastructural levers (to move rightward and downward – higher

divergence & higher throughput time) to realize their new configuration on Schmenner’s

revised matrix.

3. Hypothesis-3 Technology is used an ambivalent lever in tandem with other appropriate

levers to either improve effectiveness and/or efficiency as desired.

These hypotheses have been summarized and schematically represented in Figure-6 in a 2x2

typology matrix (idealistic in nature and are not taxonomies) with the four quadrants given

representative names of Miners, Landers, Tunnelers, and Floaters. This classification is done

depending on its current strategic focus of the firm and the direction of its strategic move when

responding to the shift in efficiency frontier.

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To validate these hypotheses “Multiple-Case Embedded Design” model of the Case based

research methodology proposed by Yin [6] was followed. The choices of cases studied and their

mapping to the Proposition quadrants and Schmenner’s revised matrix is given below in Table-1.

Case Details Hypotheses Quadrant Details Schmenner

Classification

Doshi

Housing

Limited

Established Construction Company and one of the market

leaders in the city of Chennai in India for over 25 years and

noted for its Policies on Clear Legal Titles & Quality of

Construction.

Mass Service

Quadrant at

start.

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Company has started to give-up some of the flexible policies on

personalization of homes & instead has been focusing on the

large suburban mass housing markets. (Lander : A C)

Concorde

Motors

Private Ltd

(Service

Arm)

Concorde Motors, a fully owned subsidiary of Tata Motors Ltd

established in 1997 and has a turnover of Rs. 79.4 Million.

Concorde is the market leader in both Sales and Service for Tata

Motors’ vehicles.

Firm has a Free Warranty-Service division that is going through

a wave of change with the launch of flagship “Tata Motors

Service edge” initiative aimed at enhancing customer

experience. (Tunneler: D C)

Service

Factory

Quadrant at

start.

Alpha

Technologies

( Name

Masked)

Alpha Technologies is a 6 Billion US$ IT services company

head quartered in Bangalore, India with a wide service portfolio

and noted for offering lower Total Cost Of Ownership (TCO) to

customers without compromising Quality.

Firm has a well-established Product Engineering Services (PES)

business that is trying to further improve its efficiency to

compete in the globalized market. (Miner: D E)

Professional

Services

Quadrant at

start.

Hot Chips

Restaurants

Hot chips was founded in 1992 as a fast food business in the city

of Chennai, India and has slowly has evolved into a full-fledged

restaurant. Today they have 17 stores across Chennai &

Singapore and boast of a product menu of more than 100 items

from a variety of cuisines.

Service Shop

Quadrant at

start.

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The firm is evolving from an entry-level basic restaurant to a

full-fledged restaurant and is implementing a strategy of

enhancing customer experience without compromising its core

value propositions of Tasty Hygienic food at an affordable price.

(Floater: A B)

Table-1: Choice of Case Studies

The starting positions of the evolution of the operational configuration of these firms were taken

as the base Schmenner quadrants. Then their (proposed) evolution over time was traced as a part

of the case study exercise. The study also covered the levers that have been exploited (or propose

to be exploited) when responding to the shift in efficiency frontier. The structured questionnaire

that was administered to interviewees from participating companies was designed to isolate the

challenges arising from the current configuration and the ones appearing on the horizon with the

emergent configuration.

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5 RESULTS FROM THE STUDY

This section reviews the results from the case study exercise outlined in Section 4 of this

document to test the validity of the hypotheses made. The first part of the section reviews the

observations on the current configuration of the cases and the validity of Hypothesis-1. The

second part reviews the observations on the emergent configuration of the cases and the validity

of Hypothesis-2. The last & final part reviews the role of Technology as a lever in these cases

and the validity of Hypothesis-3.

5.1 Current Configuration

Structural levers like delivery system, facility location, facility layout, capacity management

practises and level of standardization were found to play a relatively dominant role in realizing

the current operational configuration of efficiency focused organizations. While infrastructural

levers like Service Experience, People Practices, Service Quality, Demand Management and

Information Flow were found to play a significant role in shaping the operational configuration

of effectiveness focused organizations.

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In the case of Concorde’s free warranty-service business [Refer box-2 for details], they have

designed their entire operational configuration to minimize delivery-time and maintain cost

efficiency. They have gone for a medium to high level of decoupling between their front-office

(where customers drop their vehicles for service in the morning and return back to pick them in

the evening) and the back-office shop floor where the actual service is carried out. Customers

have no visibility to the back office and their interactions are limited to the Customer Service

Advisor (CSA) in the front-office assigned to the job. There are no crisscrossing process flows

between these two partitions, and instead the printed job-card and a colour coded tagging system

indicating date of delivery & urgency are the main inputs for servicing the vehicle. The

technicians in the back-office follow a fairly rigid standard operating procedure and rely on

technology-aids to complete the regular preventive maintenance service within the committed

delivery-time. They have chosen highly centralized locations for locating their back office

facilities; in fact there are just two facilities (for a volume of 1000 vehicles per day) for the entire

city of Chennai, right in opposite corners of the city. The facilities are situated in suburban areas

where land rentals were inexpensive and have sufficient leeway for growth. The layout of the

service facility is tuned for minimizing delivery-time with a complete shop-floor like provision

for pre-loading spares & consumables in each service bay, technology aids & equipments pre-

installed in each service bay to boost productivity, and desk of the Team Leader in a vantage

position to secure quick approvals. They have a very high management focus on capacity

utilization and have implemented a 60-40 partition between free service and paid service orders

to optimize their revenues with customer service. The level of process standardization is very

high and job specialization is also in the range of medium to high. Fully documented SOP

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manual, process check sheet and expert system based diagnostic software are used to drive

standardization.

In case of Doshi Housing [Refer Box-3 for details], the current configuration is tuned for a

midway point between efficiency and effectiveness. Although they have a highly decoupled

delivery system, they have not minimized the degree of customer contact as much as some of

their mass-housing competitors have done. Doshi are flexible and actively encourage customers

to specify their choices of customization & personalization within the overall construction

framework before the appropriate milestones; sometimes even if it defeats their own economies

of scale. They advance buy land in the suburban areas, but wait for sufficient public

infrastructure to develop around the land before they start construction. They have been focusing

on medium-size projects (100 to 200 dwelling units) and have a medium degree of divergence in

their delivery system. Their construction site layout is tuned for efficiency, productivity,

reduction in time wastage, and better health & safety for employees. They rely on pre-booking

(demand management) to reach the required breakeven level of bookings before they start

construction. Staffs are freely rotated across sites depending on the business need and their

workload. They have high degree of standardization in the construction process and have high

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focus on componentization in the design to reduce WIP inventories. Job specialization is very

high and helps them reduce complexity. They have an equally strong focus on service experience

especially since there is a significantly long-time for delivery. In the local market, more than

40% of the orders are generated by Word of Mouth by referrals from existing customers. Hence

they have developed strong CRM practices to keep their customers engaged when the service is

being performed. Their people practices are tuned to aid the structural lever of process

standardization. They have very high degree of focus on Quality of conformance as they believe

this aspect to be the highest contributor for customer satisfaction. Currently the management

attention on demand management (or demand shaping) is higher compared to capacity

management practices. It can be observed that Doshi have exploited a good mix of both

structural and infrastructural levers to attain their existing configuration.

In case of professional services firm Alpha Technologies (real name masked) their decoupled

model of offshore execution is at the heart of their strategy of delivering Lower TCO with no

compromises on Quality [Refer Box-3 for details]. The front-office is a logical entity that serves

as an extension of customer teams and is based onsite out of customers’ premises. Their onsite

staffs focus on requirements gathering, coordination with offshore teams and CRM practices of

keeping the customer engaged during the entire service length of project execution. The choice

of India as a location of their offshore facilities gives them a 30-40% head start by virtue of cost

arbitrage. They have also chosen centralized office locations within each of the Indian cities

(where they are based) to minimize overheads. Their offshore offices are located in suburban

areas of cities like Bangalore and Chennai with a large tract of land for future expansion. They

have organized their offices by customers, called offshore development centres (ODCs) with an

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eye on service quality. But they have compensated for this sub-optimal arrangement, by having a

team & process flow based seating layout within the ODCs to improve intra-team productivity

and knowledge sharing. There is excessive management focus on capacity management

practises, notably on the metric of human resource utilization ratio which is pegged around 80%.

This helps them maintain the desired level of efficiency and as well hold sufficient slack to

swiftly address any unforeseen mismatches with demand. They have a highly standardized

software design, development, testing and maintenance processes with well-defined Quality

gates, milestones and customer touch points. The entire SDLC process is governed by a Quality

System with documented policies, procedures, guidelines, templates and checklists that drives

process standardization and improves Quality of conformance. Their workforce is highly

specialized and hired & groomed with a spirit of compliance & discipline in project execution.

Although they have invested heavily in their People supply chain processes like hiring, training,

compensation, employee engagement, and workforce scheduling, these practises are observed to

be woven around the structural levers of offshore based project execution and compliance

towards the standardized process of execution.

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In case of Hot Chips Restaurants [Refer Box-5 for details] they mainly rely on their multi-tier

decoupled delivery system for meeting their promise to customers of Tasty and Hygienic Food at

affordable prices. In this design of their delivery system, the stores have an in-store kitchen

which only does the final assembly step in the cooking process. They rely on pre-processing

carried out in their centralized factory kitchens, and/or in one of the four locally centralized

kitchens in the city, to deliver ready-to-cook food items to the in-store kitchens. This model

helps them aggregate demand and reduce wastage of perishable WIP inventories. Traditionally

they have been targeting casual diners as their primary target segment and hence store location

played a central role in their marketing strategy. They leased store space in busy shopping areas

and travel terminuses where rentals are expensive. However they make up for these high rentals,

by the higher amount of foot-falls and table-utilization ratio such a system generates. Their

original stores were compact with about 50 to 70 seats, but their newer ones coming up in

suburban areas are larger with 200 seats. They do bulk purchase of vegetables and provisions

though long-term suppliers who work on multi-year contracts as an extension of “Hot Chips

family”. They have always exploited the in-store layout to emphasize their core-promise of

hygienic food; by exposing the in-store kitchen to the customers. In their early fast-food stores

the kitchen was fully open. In the newer stores that are full-fledged restaurants, they have put a

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non-intrusive glass partition through which the in-house kitchen can be observed. They allow

“Over the counter” (OTC) customers to mix with restaurant customers in their delivery system to

maximize server efficiency. They have a reasonably high focus on capacity management

practices like the centralized kitchens to reduce WIP inventories. Their responsive Supply Chain

(SC) also helps them cushion any impact from demand variations. They have a documented SOP

manual for the process of cooking, and contain recipes, ratios and quantities of supplements.

Their staffs are highly specialized in items like Dosa, Aappam, Chat etc and do not cook any

other item. They have a structured QA process that drives Quality of Conformance. Their

original business model did not care much about service experience, as they believed delivering

tastier food, quicker and better at an affordable price was sufficient not only to retain customers

and also grow market share by WOM. They retain a family culture within the organization and

hiring, training and employee welfare practises reward long-term association, loyalty and

compliance. Their customer feedback mechanism is limited to a suggestions & complaints book

placed in the stores. They do not have many levers for demand management. Information flow is

usually rigid and one-way down the hierarchy. However they maintain regular communication

channels with their supply chain partners.

From these four cases [Refer summary in box-6] it can be observed that the firms have attained

their desired operational configuration fitting their strategic higher order themes, by exploiting a

unique combination of both structural and Infrastructural levers. It can be noted that both

efficiency focused organizations and effectiveness focused organizations in the four cases, have

exploited both the sets of levers in tandem to achieve the desired positioning. Similarly it can be

observed that across all the 4 quadrants that Efficiency focused firms have a relatively higher

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dominance of structural elements in their operational configuration and effectiveness focused

firms have a relatively higher dominance of Infrastructural elements in their configuration. This

proves the validity of Hypothesis-1.

5.2 Emergent Configuration

The external environment for service businesses is influenced by six major forces viz.

Developments in the industry, Macroeconomic forces, Technological trends, Legal Regulatory

and Government policies, Socio-cultural forces in the target markets and Changes to the

competitive landscape. These forces create both opportunities & threats for service firms that

lead to the shift of efficiency frontier. Consequently service firms need to continuously exercise

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their strategic choice and respond with changes to their operational configuration in order to stay

competitive.

In case of Concorde Motors, the entire Indian vehicle service industry is seeing a shift towards

prevention of failure, more than the traditional business model of quick response to failure.

Hence the pricing model is also changing from being a free service/ paid service model to an

AMC model or an all-inclusive after-sales contract baked into the deal as a part of the buying of

the product. This change in context means, although efficiency can still be achieved by doing

things quicker and cheaper, it can be improved multi-fold simply by prevention of failure. So the

focus now has shifted towards Quality of Service and Preventive Maintenance (a demand

management lever). The customers no longer see the difference between paid and free service

and hence their expectations of customer-friendliness has also increased. There are an increasing

number of 3rd Party players (TVS, OMR Checkpoint etc.) arriving in the competitive landscape -

who are not into retail sales, but specialize only in service. These players are taking accessibility,

convenience, availability and service culture to a next level; especially because they don’t have

the luxury of retail salesman doing the marketing job for their service business.

So in order to stay competitive the pressure is high on traditional dealership service

centres like Concorde to improve their customer service. The response from Concorde Motors is

to increase the effectiveness of the service delivery system with a slight increase in cost of

operations. Consequently the focus has now become higher on Service Quality and Cost has

become the 2nd

priority. This migration resembles approximately equivalent to that of a

Tunneler as shown pictorially in Figure-7.

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Concorde is reducing the level of

decoupling in the system by launching programs

like Quick Repair Service (QRS) and On-Road

Assistance (ORA). QRS customers wait for a

few hours in the system and get their vehicles

serviced. Consequently the front-office layout

(especially waiting area) has been enhanced for

service warmth with comfortable sofas, air-

conditioner, newspapers and television. They

have also installed see-through glass partitions

to allow customers watch their cars being serviced. It can be observed that Concorde are

unwinding the location lever and are now more open to decentralization of facilities to gain

accessibility & convenience. The focus on capacity utilization has also decreased and they have

created a slack in service bays for unplanned QRS and ORA customer visits. They are also now

relying on their internet based e-booking system (which has 24 hours availability) to shape their

demand. The same level of process standardization continues to exist, however the walls of rigid

job specialization has decreased; as more broader skills are required to proactively identify &

remedy potential service failures. There is very high focus on service experience especially on

improving accessibility & convenience. The Quality of Conformance has been supplemented

with a high focus on prevention of failure. So management attention is high on recurring

customer complaints and lower Customer Satisfaction Index (CSI) scores. They have also

invested in a sophisticated Data Analytics package to identify such issues and trigger actions.

The people practices in the organization that previously supported rigid job specialization and

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culture of process compliance now focus on service experience. They are sending their key

employees for training on soft-skills and customer centricity in the corporate training centre 1500

KMs away at Sanand in Gujarat. With these changes, the Demand Management lever of price

differentiation has become active & available for Concorde to partition demand for QRS and

other premium services.

In Case of Doshi Housing, the entire housing industry in Metro and Tier-1 cities of India is

moving towards a mass-housing model where increasingly integrated townships and multi-storey

apartments are constructed. The Government has also imposed a restriction that 20% of the

dwelling units in such mass-campuses should be single bedroom apartments; catering to the need

of economically weaker sections of the society. This trend has started the pushing the urban

housing service industry towards a more efficiency focused model. This change in context

means, all serious builders have to buy large quantity of land in suburban areas in anticipation

for such mega projects. Such a move blocks working capital & increases financial risk. So

companies like Doshi are moving to a JV model where one party owns the land, partners with a

builder to develop the site and they jointly promote the project. The success of JV model hinges

on superior project execution skills & on-time delivery. Similarly, due to the acute shortage of

specialist labour and the high level of penetration of construction technologies, there is a strong

emergence of several specialist 3rd party service providers (3PSPs) who can exploit economies

of scale & knowledge. These 3PSPs are eager to take-up fixed price contracts in a time-bound,

quality-controlled outsourcing model with a risk-reward sharing mechanism.

So in order to stay competitive, Doshi has decided to embrace the change and alter their

operational configuration and considerably improve their level of efficiency. Cost has gained a

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disproportionate importance in their new world. Consequently they are reluctantly giving away

some of the practices of personalization & customization of homes that has been a key

differentiator for them. This migration approximately resembles that of a Lander as shown

pictorially in Figure-8.

Doshi has increased the level of

decoupling between their back-office and front-

office and the outsourced operations model has

created a multi-threaded structure which

requires superior horizontal coordination skills

to manage. The level of customer contact is

decreasing and the operational system is moving

towards a quasi-manufacturing setup. The

choices of personalization & customization are

decreasing and house as a product is becoming increasingly commoditized. Hence the

importance of site location has increased both from cost & a marketing point of view. Similarly

3rd

Party service providers (3PSPs) are basing their factories/facilities in locations that give them

execution advantage. Example Granite cutting & polishing is done in 3PSP factories close to the

National Highway and shipped to construction site only for laying. The layout of the

construction site has also been changed to enable stream-lined assembling of components

received from 3PSPs. The level of divergence has reduced further with high degree of

standardization coming in not only with execution, but also with design & structural engineering

aspects. There are emerging industry standards for componentization enabling more buy-over-

make decisions. As they have started outsourcing the technical activities to specialist 3PSPs the

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focus of their people practices has moved towards hiring & training people with superior project

management & quality management skills. The role of pre-booking and demand management

has diminished with the arrival of JV model and FG inventories. They now proactively hire

people, make investments, procure materials and start execution without waiting for the

breakeven number of bookings. Hence capacity management issues have started to receive an

increased amount of attention from the Top Management. The focus of service experience has

also shifted more towards delivering to promise. Pre-sales is becoming more important than

CRM as they start selling ready-to-occupy apartments. Service Quality has been reduced to an

order qualifier now, but Quality of Design has assumed a bigger role in marketing project in an

otherwise undifferentiated setup. Since they now build inventories of ready-to-occupy houses,

and enjoy reduced touch-time with customers, the challenges with marketing have increased

multi-fold. Hence they are resorting to more traditional mass marketing techniques like Print

Media Advertisement. Pre-booking focus has also reduced, although it is still welcomed until the

breakeven stage. However the other demand management levers of controlling marketing

promotions and campaigns, price differentiation etc. continue to be used more for revenue

maximization than for capacity mismatch adjustment. Overall it can be observed that the system

is getting more tuned for efficient execution.

The Product Engineering business of Alpha Technologies is going through period of rapid

evolution. With the increased competition from emerging markets like China, Russia, Korea and

Eastern Europe, and with increasing salary wages and other costs of operating out of India, the

margins are quickly getting eroded. So companies like Alpha with a majority-base in India need

to find newer ways of lowering the TCO of customers without compromising quality.

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Additionally there is increasing demand from customers for shorter delivery cycles, rapid

prototypes, and collaborative development. Technology product lifecycles have considerably

reduced and there is huge pressure to be first to the market for skimming the customers. Along

with this there is a need to drastically reduce cost base and develop capability to quickly replicate

differentiating features of competitors. Additionally these days’ products are getting globally

launched in a multi-country roll-out model. So multi-country compatibility is becoming an

essential requirement for PE business and Hi-tech customers are looking for service partners like

Alpha to give them this capability. In the increasingly competitive world of Digital Economy

(Telecom, Media, Communication, Technology, Consumer Electronics) there is a convergence

of diverse digital technologies into a single product. For example, Mobile devices need to

implement diverse features like Music, Location Services, Internet social networking, and Multi-

media streaming capabilities etc. This convergence requires product engineering staffs to

constantly stay abreast with the Wave of Technology and deliver products, much quicker, much

cheaper and much better. This means firms like

Alpha have to find newer ways of reducing their

TCO and delivery cycles, and also develop much

deeper & wider capabilities in the product

engineering space.

Hence the niceties of service experience

have taken a back-seat and aggressive price

reduction & thorough quality of conformance has

become the order of the day. So from Alpha

perspective, lowering cost continues to be their

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1st priority; while shorter delivery cycle-time and unflinching quality of conformance have taken

higher priority over service experience. This migration resembles approximately that of a Miner

as shown pictorially in Figure-9 when responding to the shift in efficiency frontier.

Alpha is modifying their offshore delivery system into a Global delivery model (GDM)

by moving some part of their work to China, Vietnam and Eastern Europe where there is

availability of suitable talent pool. This “horses-for-courses” execution model increases job

specialization and also the need for building support systems that enable distributed development

(DD). Additionally Job specialization is consciously being made narrower, so that staffs can stay

abreast of technology developments in their respective specialization areas. Along with this

initiative, to reduce the cost-base, they are breaking away from the traditional practice of hiring

engineers only from premier colleges who are both expensive and in short-supply. They are

looking for Engineers from Tier-2 and 3 colleges and Non-engineering graduates to do low value

functions. There is heavy focus on promoting Non-linearity initiatives (NLI) which aim to

productize the PE business and de-link the revenue growth from headcount growth. There is also

an additional benefit of pre-processing and componentization i.e. to shorten delivery cycles.

Some NLI initiatives they have launched are promotion of Flex Delivery Centres (FDC)

that work on a shared resource model, promotion of creation of rapid acceleration frameworks

and ready to use point solutions, and alternate pricing models that are either output based (no of

transactions processed, no of tickets fixed etc.) or outcome based (royalty payment, % of sales

etc.). Additionally there is a conscious move to steer customers away from the Staff

Augmentation model of engagement and move to a Managed Services Execution model which

demands a higher degree of outsourcing maturity.

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The level of decoupling has increased with the Global Delivery model and move to

Managed Services execution model. As customers focus more on output & outcomes, rather than

on the input, GDM and DD are gaining momentum and decisions on choice of location are being

made keeping in cost efficiency, delivery cycle time and availability of talent pool. With the

arrival of FDCs, the traditional ODC layout constraints are broken. People working across

customers on the same technology/process are now seated together to leverage shared system

resources & enable better knowledge sharing. With the advent of FDCs and usage of shared

resources, the need is a lot higher to closely monitor & address any supply-demand mismatch

issues. Failures won’t cost just in terms of revenue loss, but can involve service penalties as well.

Pre-processing is gaining importance by building accelerators and point solutions for rapid

application development. Flexible Service scheduling is now possible with the arrival of mature

outsourcing models. So overall it can be observed that there is a higher degree of focus on

Capacity Management. Similarly Process standardization is marginally increasing to account for

the new execution models. However there is an increased focus on componentization in design

and an increase in job specialization. On the flipside, there is loss of personal touch to the

customer. So here is increased reliance on living up to promises, using multi-tier governance and

traditional marketing practises to shape customers’ perception of service quality. People practises

have always played a supporting role to the structural levers; in the past & that trend continues.

Hiring policies have been revised and they use technology enabled trainings to reduce the cost

the overhead. With focus on generating more IPs (for NLI), they have tweaked their IP bonus

incentive structure to support controlled innovation in the office labs. With the reduction in

reliance of service experience, Quality of conformance has become non-negotiable. They are

leveraging Technology aids, Frameworks like Orthogonal Array and in-house QA solutions like

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Alpha style and Code Checker to improve Quality of Conformance. As they steer customers’

away from T&M staff augmentation engagements, price differentiation and demand sliding are

also no longer available to shape the demand. Hence complete reliance has shifted to capacity

management side now. With the increase in virtual teams and the launch of distributed

development model, there is a need for greater collaboration. Earlier teams were only onsite &

offshore, but are now distributed at multiple offshore locations. The multi-tier governance model

they implement also demands better information flow.

With the boom in Indian Economy, clearly more & more families are opting to dine out

especially over the weekends. Hence Hot Chips (HC) cannot afford to only target casual diners

and ignore this attractive segment of diners. So HC has to alter their positioning to tap this

attractive segment, without compromising on their core value proposition of hygienic quality

food made available at reasonable prices. The key strategic imperatives driving the enhancement

of service experience are (a) Customers are demanding better service. The price elasticity has

increased with the boom in Indian economy. More and more middle-class families are venturing

to dine-out especially over the weekends and their service expectations are much higher. (b)

There is an emergence of Non-South Indian fast-food joints especially offering Sandwiches,

Burgers, Chat items etc. that is eating away considerable portion of the casual diners’ crowd.

Hence there is a need to focus on multiple segments to grow and also hold on to market share.

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Consequently HC are changing their operational configuration to significantly enhance

service experience without compromising their reputation on Quality. As a result the cost-base

is increasing but they are counting that this

increase will be made-up by the price

elasticity such a superior service experience

commands. So for HC improving service

quality has become the 1st priority while cost

has taken the back-seat. This migration

resembles approximately that of a Floater as

shown pictorially in Figure-10 when

responding to the shift in efficiency frontier.

They have started converting even

their old small-size fast food joints into restaurants that have seating space and table service

option. They are launching new service experience restaurants in South Chennai that have a

wider product menu with air-conditioned halls offering superior ambience for families. They are

broadening their product menu to include western products like Sandwiches, Pizzas, and Chinese

Noodles etc. They have also gone native in bringing Chettinad and Kerala food items on the

menu. They have also introduced sweets, savouries and ice-creams in their stores. They are

contemplating launching of home-delivery service for telephonic orders. They are also starting to

offer complementary services like Party hall, Children’s play area in their newer set of

restaurants. There is a lot of focus on improving the service experience of customers dining in

the restaurants. They are attempting to mould the entire service culture in the organization by

hiring practitioners from full-fledged restaurants on senior management roles, imparting soft-

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skill and customer centricity trainings to their existing staffs, introduction of impressive uniforms

to their front-office staffs etc. Their hiring policy has also been changed to hire specialists in

multiple cuisines and people with diploma in catering technology for customer facing roles. So

overall it can be observed that their average floor-space in their stores is increasing, the average

seating capacity in their stores is increasing, but the Net seats-to-floor space density ratio is

decreasing in response to the privacy and convenience demands of family customers.

As the product menu increases, the opportunities of centralized processing have slightly

decreased although they are trying their best to retain their multi-tier back-office configuration.

The importance of location has changed and they are now opening more stores in residential

localities and suburban settings. The store layouts are no longer designed for efficiency but

instead for improving accessibility & convenience. OTC customers have now been separated

from restaurant customers to ensure service experience is not diluted. They are still relying on

Capacity Management to make-up for the loss in efficiency caused due to other measures. They

are planning a new IT system for managing their supply chain. The modular design of the party-

hall allows them to run complementary services at off-peak hours. Their focus continues to

remain towards process standardization and pre-processing of food items. The highly specialized

job profiles continue to exist – only the number of roles has increased with the inclusion of new

cuisine styles. They use service partition of various items to optimize service scheduling. The

awareness & focus on service experience and service culture has increased across the company.

Some initiatives in this front are Staffs have been given branded uniforms, waiters are educated

to be patient and polite when taking orders, food service manners & decoration are now given

additional importance, and complementary Service Partners like Pepsi fountains, Red Bull Kiosk

etc. are being added to the stores. They are recruiting professionals from full-fledged restaurants

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to engineer a service culture in the company. Hiring policy has been amended in line with this

change as they have started to hire service-minded staffs. Training on soft-skills and customer

centricity is being provided via external consultants. They are also encouraging competition site

visits to help their store managers discover areas where they lack for themselves. The focus on

quality of conformance still remains. QA audits and surprise checks are being organized by the

CQO. Feedback from customers is being sought during these surprise visits. On the Demand

Management front, Price differentiation of OTC and Restaurant customers is possible now.

Home delivery being launched to increase convenience to customers, but it also cushions

capacity utilization without consuming store space as an add-on effect. Information flow across

the supply-chain has to be increased. With professional work-culture setting-in, they have

recognized the need for bi-directional information flow & bottom-up innovations.

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So in summary [Refer Box-7 for details] as observed across all the 4 quadrants of the revised

Schmenner matrix, the dominant usage of structural levers shifts the firm leftwards and upwards

to a target position of lower divergence and quicker throughput time. Similarly dominant usage

of Infrastructural levers shifts the firm rightwards and downwards to a target position of higher

divergence and longer throughput time. By controlling the combination of levers used, a firm can

attain its desired target position. This proves the validity of Hypothesis-2.

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5.3 Role of Technology

The observation across the 4 cases [Refer box-8 for details] is that Technology is leveraged

either in aid of the structural levers or in assistance to the Infrastructural levers depending on the

strategic intent. It was observed in all the 4 cases that it has been applied in conjunction with

either the structural or Infrastructural levers to make the appropriate movement (Miner, Lander,

Floater and Tunneler) when responding to the shift in efficiency frontier. This proves the 3rd

hypotheses that Technology is an ambivalent lever and can be used in aid of either structural or

Infrastructural levers to help a firm attain a desired operational configuration.

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6 SUMMARY & CONCLUSION

In summary it can be observed that both structural elements and infrastructural elements are

required for a firm to attain its desired configuration. Firms with strategic focus on efficiency

have a relative dominance of structural levers (delivery system, facility location, facility layout,

capacity management and standardization) in realizing its current configuration, while firms with

strategic focus of effectiveness have a relative dominance of infrastructural levers (service

experience, people practices, service quality, demand management and information flow) in

realizing its current configuration. Due to the changes in the external context caused by the

action of six environmental forces (Industry dynamics, Macroeconomic, Technology, Legal &

Regulatory, Socio-Cultural and Competitive Landscape) there is a continuous shift in the

efficiency frontier. Hence firms positioned on the efficiency frontier need to continuously

exercise their strategic choice to migrate towards an emergent configuration in order to stay

competitive. As a part of this continuous evolution process, the managers in these firms face twin

set of challenges; one from preventing the existing configuration from collapsing during the

transition, and second on the new set of challenges that arise from the emergent configuration to

transform the organization. If the strategic shift of the firm is to improve efficiency, then it can

be observed that there is a relative dominance of structural levers to help the firm attain the target

configuration. If the strategic shift of the firm is to improve effectiveness, then it can be observed

that there is a relative dominance of infrastructural levers to help the firm attain the target

configuration. Technology has been observed to be an ambivalent lever that works in tandem

with both structural and infrastructural levers to improve efficiency and/or effectiveness.

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7 LIMITATIONS & FURTHER WORK

The following limitations were observed when conducting this case study.

The Case based research methodology followed has limitations in answering “what”

questions. The assessment of dominance of levers was made [Refer Appendix-1] based

on author’s observation of the pattern of usage, criticality of the lever to the

implementation of strategy and the subjective assessment of the interviewees as

expressed in the questionnaire survey form (that does not hold a statistical significance).

Hence a complete representative survey of all the diverse stakeholders in an organization

would be a superior option to statistically establish the relative dominance of the levers.

The study covered only one case in each of the quadrants of Schmenner’s matrix due to

the restricted scope & time. Although care was taken to ensure that the 4 cases were

representative of the four quadrants and covered all the 4 directional movements, this

approach has its own limitations. A superior approach would be to cover 4 firms each in

each of the 4 quadrants representing each of the 4 directional movements. Such a

comprehensive study should yield scientifically superior results.

It was assumed that all the 4 cases studied were on the efficiency frontier because they

are highly successful companies and market leaders. However this approach is far from

perfect and it is recommended that this fact is verified as a pre-requisite by conducting an

operations strategy fitment study. Doing so would ensure survival issues do not colour

the genuine response to shift in efficiency frontier.

The case data was collected by going through company documents, websites, and by

administering a structured questionnaire to the target interviewees. However the author

did not undertake any site visit to verify the validity of the responses made by the

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interviewees. Although there is no reason to suspect their genuineness of the responses,

the data is technically liable to be coloured by perception of the interviewees.

All the 4 companies were chosen from a single geographic location i.e. Cities of Chennai

and Bangalore in India. Diversity in selection can remove any location/culture specific

biased induced in the study.

The areas of further research recommended as a follow-up to this study are:-

A comprehensive study on this topic addressing the limitations outlined above should

yield scientifically superior results.

The role of capacity management levers and demand management levers [8] should be

studied as a separate study for establishing insightful contexts on their application for

addressing supply-demand mismatch issues.

8 ACKNOWLEDGEMENTS

The author wishes to thank Professor L.S. Murty of IIM, Bangalore for his inspirational guidance

and support right through the course of this research work & study. The author would also like to

thank all the four participating organizations and interviewees from these organizations who

whole-heartedly supported this study.

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REFERENCES

[1] Fitzsimmons, J.A. and Fitzsimmons, M.J, (2006), “Service Management”, McGraw Hill

International Edition, pp 37-58, pp 77-96

[2] Schmenner, Roger W, (1986), "How Can Service Businesses Survive and Prosper?" Sloan

Management Review, Spring, pp 21–32.

[3] Curtis P. McLaughlin, Ronald T. Pannesi, Narindar Kathuria, (1991) "The Different

Operations Strategy Planning Process for Service Operations", International Journal of

Operations & Production Management, Vol. 11 Issue 3, pp.63 - 76

[4] Verma, Rohit, (2000), “An Empirical Analysis of Management Challenges in Service

Factories, Service Shops, Mass Services, and Professional Services”, International Journal of

Service Industry Management Vol. 11, No. 1, pp 8-25

[5] Robert H. Hayes and Gary P. Pisano, (1996), “Manufacturing Strategy: At the Intersection of

Two Paradigm Shifts” Production and Operations Management Journal, Vol. 5, Iss.1, pp 25-41.

[6] Robert K. Yin, (2003),”Case Study Research Design and Methods”, SAGE Publications,

Third Edition, pp 19-53, pp 57-81

[7] Metters, R. and Vargas, V., (2000), “A typology of decoupling strategies in mixed services”,

Journal of Operations Management, Vol. 18, pp 663-682.

[8] Bitran, G. and Mondschein, S., (1997), “Managing the Tug-of-war between Supply and

Demand in the Service industries”, European Management Journal, Vol. 15, No 5, pp 523-536

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APPENDIX -1(ASSESSMENT OF LEVERS)

abstract number: 020-0438 a case based study of …rohit verma had carried out an empirical study...

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