Ch 07
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Transcript of Ch 07
The Front-Office, Back-Office InterfaceChapter 7
Chapter 7 – The Front-Office, Back-Office Interface
Successful Service Operations Management, 2006, Thomson
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Front-Office/Back-Office Interface
• Main concern: aligning functional and corporate service strategies – Organization:
• Introduction to misaligned strategies
• Academics
• Practitioners/Consultants
• Prescriptive model - aligning de-coupling and strategy
• Analysis of the retail bank lending market
Chapter 7 – The Front-Office, Back-Office Interface
Successful Service Operations Management, 2006, Thomson
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Strategic Service Vision
• Service Concept definition: results provided for customers– General service concepts– Cost– Speed– Flexibility– Quality
• Service Delivery System
Chapter 7 – The Front-Office, Back-Office Interface
Successful Service Operations Management, 2006, Thomson
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Strategic Service Vision
• Does a Service Delivery System support the intended Service Concept?– Equipment, training, policies, procedures…
Low Costs
Fee Reversal Policy
High Service
Staffing Levels
Flexibility
Systems Technology
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Academic Literature
• Productivity– Levitt (1972) “Production-line Approach to
Service,” HBR– Levitt (1976) “The Industrialization of Service,”
HBR
• De-coupling of Front- and Back-office– Chase (1978, 1981) Customer Contact Model,
HBR, Ops. Research
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Basic Principles of De-coupling
• Customer contact model – Richard Chase, USC• Services categorized by level of customer
contactHigh Contact Low Contact
Pure Services Mixed Services Quasi-Manufacturing(medical) (branch banks) (distribution centers)
Efficiency: f(1 – contact time/service creation time) Potential for efficiency increases as customer contact
time/service creation time decreases
Chapter 7 – The Front-Office, Back-Office Interface
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Decoupling
• Method– Decouple high contact and low contact “service
factory” operations – Buffer low contact operations from customers
• Employ contact reduction strategies in the low-contact areas– customer contact for exceptions only– reservations/appointment systems– drop-off points (ATMs) – task standardization
Chapter 7 – The Front-Office, Back-Office Interface
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Decoupling
• Employ contact enhancement strategies in the high-contact areas – customer-oriented layout– people-oriented contact workers– partition back office from public view
Chapter 7 – The Front-Office, Back-Office Interface
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Managerial Differences
High Contact: Low Contact:Support Center Branch
Facility Location near the customer near supply,transportation, labor
Facility Layout customer-oriented production efficiency
Production orders cannot be smooth production planningstored with backorders
Worker Skills public interaction technical
Quality Control variable standards numerical measurement
Capacity set to peak set to averagework loadwork load
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Two Models of Human Resource Practice
Coupled De-coupledSelection criteria Trainability College for platform
H.S. for tellers, back-office
Training emphasis Broad Immediate task customer focus focus
Compensation At or above market Above market for some, below for others
Group incentives Individual incentives Returns for longevity
Job Design Cross-training Narrow, specialized
Enhanced discretion High control for most
Part-timers For retention For cost-control
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Practitioner Literature – “De-coupling is good.”
• Banking– Burger (1988) Bank Systems and Equipment– Cronander (1990) Texas Banking– Gilmore (1997) Real Estate Finance Journal– Pirrie, et al. (1990) Banking World– Reed (1971) “Sure It’s a Bank but I think of it as a
Factory,” Innovation
Chapter 7 – The Front-Office, Back-Office Interface
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Practitioner Literature
• Other Services
• Government:– Connors (1986) Office
• Hospitals:– Greene (1990) Modern Healthcare
• Newspapers:– Sharp (1996) Editor & Publisher, 129(29)
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Service Blueprint for Fast Food Restaurants
Make Patties
Grill Assemble
Counter
Line of Visibility
Chapter 7 – The Front-Office, Back-Office Interface
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De-coupling and cost
• Does de-coupling always lower costs?
• Why does de-coupling often lead to lower costs?– De-coupling and task focus
• Frederick Taylor and Henry Ford
Chapter 7 – The Front-Office, Back-Office Interface
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De-coupling and Rounding of Small Numbers
• 20 individual units – Each needs 0.75 of a person
• Staffing level: 1 person each, 20 total
1
1
11
…
1 central unit:
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Chapter 7 – The Front-Office, Back-Office Interface
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De-coupling and Variance Reduction
• 20 individual units: average day -1 person, good day -2 people
• Staffing level: 2 people each, 40 total
1 central unit
252
2
2
2
…
Chapter 7 – The Front-Office, Back-Office Interface
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Cost Problems
• Back office:– (Queuing math) centralization is good. – Bigger means less idle time, higher utilization
• Front office staffing:– Bigger is also better– Convenience strategy
• Large minimum break-even points
• Break-even based on labor reduction
Chapter 7 – The Front-Office, Back-Office Interface
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De-coupling and Flexibility
• Bank employee moved from coupled to de-coupled job:– “The computer system is suppose to know all the
limitations, which is great because I no longer know them.”
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De-coupling and Flexibility
• Bank manager– “As we have more and more processing in the black
box, few people know what a bank is really like. Some guys are walking encyclopedias of banking information, but they are a dying breed. Do we need people who really know all the processes? Is there a risk?”
Chapter 7 – The Front-Office, Back-Office Interface
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De-coupling and Service Quality
Service Gaps – de-centralized service
ManagementPolicy
Customer ServiceProvider
Chapter 7 – The Front-Office, Back-Office Interface
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De-coupling and Service Quality
ManagementPolicy
Customer
Service Gaps – centralized service
ManagementPolicy
High contact worker
Low contact worker
Chapter 7 – The Front-Office, Back-Office Interface
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De-coupling and…
• Service Quality– Quality of conformance – decision consistency
improved– Task quality and the “Renaissance man”
• Speed– Speed of Task versus speed of Process– Task speed improved due to focus– Process speed can be worse due to hand-offs
Chapter 7 – The Front-Office, Back-Office Interface
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De-coupling
• Benefits
– Cost (task focus, variance reduction, technology)– Service quality – conformance quality– Speed of Delivery – task speed
Chapter 7 – The Front-Office, Back-Office Interface
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De-coupling
• Disadvantages
– Cost (increased idle time in front-office, duty overlap)
– Service quality – personal service, empathy– Speed of delivery – process speed– Flexibility
Chapter 7 – The Front-Office, Back-Office Interface
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Back-Office Decoupling Strategies
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Management Practice Cost Leader Cheap Convenience Focused
Professionals
High Service
Level of De-coupling
High Low High Low
Competitive Advantage
Low costs Locational convenience/low cost
Personalized service at moderate cost
Premium level of personalized service
Reason to De-couple
Scale economies Maintain cost competitiveness
Quality control; disaggregation of high-and low-contact
Centralize only when it is cost prohibitive not to
Activities to De-couple
All back-office work Centralize back-office work in excess of front-office idle time
Back-office activities “regionalized,” not centralized
Activities requiring expensive capital goods
Consistent Functional Choices for Decoupling Strategies
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Management Practice Cost Leader Cheap Convenience Focused Professionals
High Service
Operational Strategic Focus
Cost minimization; Conformance quality
Cost minimization; conformance quality
Maintain sufficient flexibility, response time, or service quality at lower cost than High Service
Maximize flexibility, response time, or service quality
High-Contact Product Line
Narrow Very narrow Broad Very broad
Training Narrow, focused on task within process, low cross-training
Broad. All employees should be able to perform each function.
Narrow, but focused on an entire process
Broad, but with specialization across functions
Consistent Functional Choices for Decoupling Strategies
Chapter 7 – The Front-Office, Back-Office Interface
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Consistent Functional Choices for Decoupling Strategies
Management Practice Cost Leader Cheap Convenience Focused Professionals
High Service
High-contact Worker Responsibility
Service customer requests; Low off-site responsibilities
Service customer requests; Low off-site responsibilities
Increasing number of customers largely through off-site activity
Increasing customer relationship depth; High off-site responsibilities
High-contact Worker Compensation
Salary/hourly Salary/hourly Commission on sales Salary with commission on unit performance
Purpose of Automation Standardize activity; Labor replacement
Reduce job complexity Enhance marketing Enhance service
Chapter 7 – The Front-Office, Back-Office Interface
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Activities in Processing a Retail Loan
Line of Customer Visibility
Solicit Application
Application Processing Credit
Decision
Payment Processing Bad Debt Collection
Document Signing
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High Service
Focused Professiona
ls
Cheap Convenien
ce
Cost Leader
Low High
Level of De-coupling
Service
Cost
Strategic Operational
Focus
Bank of Green Hills Union Planters
Nashville Bank of Comm.
First Union
Modeling Services De-coupling
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Industry Analysis: Retail Lending in Nashville, TN
• Cost Leader:– AmSouth
– First American
– First Union (changing to focused professional)
– NationsBank
• Cheap Convenience– Nashville Bank of
Commerce
• High Service– Sun Trust– South Trust Bank of
Green Hills
• Focused Professional– Union Planters
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• Practitioner/Academic view of De-coupling
• De-coupling as part of a coherent strategyDe-coupling Strategic Focus Classification
High de-coupling Service Focused Professional
Cost Cost Leader
Low de-coupling Service High Service
Cost Cheap Convenience
Chapter Summary