11- Service Operation Management

Introduction:

Marketers must learn more about selling service products as India draws closer to a service economy. Simply put, services are actions or benefits that one party might provide to another that are fundamentally intangible and do not result in the ownership of something. As a result, we can see how services differ from things.

Services have been increasingly crucial in the Indian economy during the last decade. Services have risen to prominence since the 1990s, when this trend began. Simultaneously, rivalry in service organisations is intensifying and becoming more severe. As a result, these businesses must take a more professional approach to running their operations. Perhaps it is in this environment that the role of marketing in service organisations is gaining traction. The notion of services will be explained to you in this unit.

Tangible goods and intangible services are two types of marketable items. Every day, we consume tangible items such as food, veggies, oils, televisions, fans, refrigerators, etc. Similarly, we use transportation, health care, education, telecommunications, entertainment, and other services. Services have become an important part of people’s lives worldwide, and many believe that services are transforming people’s lifestyles and quality of life. Every economy in the world relies heavily on services. It is one of the key components of an economy, alongside agriculture and industry. The service industry has grown significantly in all countries over the previous three decades. This sector surpassed agriculture and industry in importance, and it now dominates the economies of developed and many developing countries. The share of the services sector in a country’s Gross Domestic Product (GDP) is used as a criterion for classifying an economy as a service economy. When the service sector contributes more than 50% of the nation’s GDP, the economy is referred to as a service economy.

The service industry has grown significantly in all countries over the previous three decades. This sector surpassed agriculture and industry in importance, and it now dominates the economies of developed and many developing countries. The share of the services sector in a country’s Gross Domestic Product (GDP) is used as a criterion for classifying an economy as a service economy. When the service sector contributes more than 50% of the nation’s GDP, the economy is referred to as a service economy. In 1948, the United States of America (USA) became the first economy to be designated as a service economy. The majority of the world’s economies have now evolved into service economies. In the year 2000-01, India transitioned to a service economy.

Definitions:

The American Marketing Association (1960): Services are “activities, benefits or satisfactions offered for sale or provided in connection with the sale of goods.”

This definition provides a limited view of services. However, this was the first major attempt to identify services differently in valuing a society’s output. The definition is to provide or value services involved in producing tangible goods.

William L. Stanton (1974): Services are “separately identifiable, intangible activities which provide want satisfaction when marketed to consumers and/or industrial users and are not necessarily tied to the sale of a product or another service”. This definition focuses upon several issues for recognition. They are:

Services are those activities that are identifiable separately.
Services are intangibles that provide want satisfaction to consumers.
Services are marked directly for consumers and industrial users.
Services may or may not be tied to the sale of goods.
A service may or may not be tied with the sale of another service.

Philip Kotler and Bloom (1984): Service is “any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product.” This definition more or less follows the earlier ones. The focus was given to the absence of ownership as a unique feature of services, which has significant business implications.

Christian Gronroos (1990): Service is “an activity or series of activity or series of activities of more or less intangible nature that normally, not necessarily take place in interacting between the customer and service employee and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems.” This is the definition in which an attempt was made to include all important issues relating to services management and marketing.

Zeithmal VA and Mary Jo Bitner (1996): “Services are deeds, processes and performances.” Although the definition seems more precise, it provides a marketing orientation to the services concept. It gives an understanding that the consumer is interested in deeds, processes and performances in perceiving the value of the service.

Christopher Lovelock: He described services through two different approaches. A service is an act or performance offered by one party to another. Although the process may be tied to a physical product, the performance is essentially intangible and does not normally result in ownership of any of the factors of production. Services are economic activities that create value and provide customer benefits at specific times and places due to bridging about a desired change in – or on behalf of – the service recipient. The definition given by marketing experts establishes the scope of services. The scope of services marketing includes marketed and marketable services. The shortest definition of services marketing is “meeting service needs of the consumers at a profit”.

Service Operation Management:

The service movement was sparked, in part, by the realisation that many students were or would be involved in non-manufacturing duties. Both students and academics expressed dissatisfaction with the existing operations management content. Economic batch amounts, line balancing, and stock control were just a few of the topics commonly taught back then, but they had little to do with the key difficulties faced by service managers. That isn’t to suggest that these tools and techniques weren’t useful. Still, customer service, service quality, and service design were all major concerns for many service operations managers, and no tools or techniques were available to assist them.

The demand for service-based content came at a good time. It corresponded to a growing recognition of the significance of the customer and a more customer-centric approach to business. This was a substantial departure from the traditional operations management perspective, which focused on internal efficiency. It also corresponded to a developing “strategic” trend in operations. This challenged operations’ conventional reactive function, attempting to make the subject more market-oriented by recognising how operations may support and help generate a strategic advantage (see, for example, Hayes and Wheelwright, 1984; Hill, 1985, 1989; Skinner, 1974, 1985).

Service businesses are very appealing and are all over the place. Numerous instances, experiences, and research data may be drawn from ordinary life: service operations are everywhere. As a result, they are an everyday part of our kids’ lives. They can easily relate to issues such as hospital bed scheduling, multiplex cinema layout, and the quality of a shop experience. Car manufacturers, paper mills, and plastic coating lines are all vital, but they can seem far away from many people’s lives.

Furthermore, we almost always perform some duty within a service operation. Students participate in a service experience while sitting in a lecture, just as we offer or manage that service. They are experiencing interactive service experiences while they go to the library, eat, or socialise. Service “factories” abound; Chase’s introspective piece on service operations is titled “The Mall is My Factory” (1996).

In many parts of the world and several functional sectors, there was a growing and compelling interest in service (Brown et al., 1994; Gronroos, 1994; Johnston, 1994; Schneider, 1994). For example, marketing, accounting, and HRM academics were becoming more aware of their service-oriented students. There was rising concern about their material’s product-based character. The marketing department appeared to be focused on the promotion of white goods. Academics in accounting utilised examples based on a fictitious product called a “widget.” Ironically, this is the common name for a beer can insert that introduces gas into the beer when the can is opened, resulting in a creamy head. (I’m sure most OM academics have opened a can to see what’s inside!) As a result, the service management movement arose from many diverse disciplines, bringing together people who shared a passion for all things intangible.

A large-scale, global movement grew in strength and popularity from these humble beginnings. This has significantly impacted research and education over the last ten to twenty years. Like the service marketing movement, the service operations movement has undergone several stages: initial recognition of the difference between commodities and services, development of conceptual frameworks, and empirical testing of these frameworks. We’ve now reached the fourth stage, which is concerned with using the tools and frameworks to improve service management. As the service movement has grown, with more overlap between subjects such as operations, marketing, and HRM, this fourth stage is also marked by a “return to roots,” a recognition that we may have lost sight of or inadvertently overlooked, the strength of our core disciplines, as well as the need to bring a sense of academic rigour and depth to the developing subject of service management.

Development of Operations:

Stage one — Service Awakening:

Stage	Nature of Research	Focus of Research	Outcomes	Operations Management Issues
ONE	Descriptive	Goods v/s Services	Services are different	Growing awareness of the importance of service, customer operations and customer contact

Before 1980, business scholars were primarily concerned with manufacturing, marketing, and managing physical things. By 1955, the service sector had surpassed the product-based sectors, accounting for little over 50% of the UK’s gross domestic product. However, operations management academics took another 20 years to apply their knowledge and abilities to service operations. In 1970, operations management was referred to as production management. It arose from a more focused view of operations and manufacturing management. Factory management was the name given to the post-industrial revolution era’s quest for efficiency, based on Frederick Taylor’s scientific management philosophy (1911). The application of method study techniques, production planning and control, capacity management, and materials management, for example, in production settings, includes distribution, transportation, hospitals, libraries, and publishers.

In the 1970s, there was a growing acknowledgement of service operations, and Johnson et al. and Buffa were the first two manuals to do so. “To reflect the expanding emphasis on the range of applicability of production management principles and practices—non-manufacturing and service industries as well as manufacturing,” both books were named Operations Management.

Service operations management was a little slower to catch on, as it was “essentially Operations Research (OR) applied to service settings” (Chase, 1996). Earl Sasser’s essay “Match Supply and Demand in Service Industries,” published in the Harvard Business Review in 1976, was followed two years later by the pioneering textbook Management of Service Operations (Sasser et al.,1978), which contained what are now considered classic scenarios and challenges. “Where does the customer fit in a service operation?” Dick Chase also authored a service piece for HBR (1978). He encouraged the operations management community to think about two sorts of operations: the typical back office factory and the front office interacting with customers. Chase and Sasser et al. gave the study of customer-based operations academic credence and authority. “Production-line approach to service” (Levitt, 1972), “Quality control in a service business” (Hostage, 1975), “The new back office concentrates on customer service”), and “Marketing’s potential for enhancing efficiency in service industries” were among the other papers with different operations topics. Levitt’s study continues to be a great source of inspiration for new research.

In essence, stage one (named the “crawling out” stage by Brown et al. (1994) using the analogy of the development of the human species) was defined by the realisation of the presence of service. Academic work was generally descriptive, focusing on the distinction between goods and services. This is known as the “classification era,” according to Chase. Even though Levitt et al. and colleagues pioneered the service operations revolution, service operations remained deeply rooted in its manufacturing roots. Furthermore, while some attempts in other areas were recognised, the concept of a cross-functional service management issue was still far off. Research was carried out in places where there was little or no cross-fertilization.

Stage two — Breaking Free from Product-based Roots:

Stage	Nature of research	Focus of research	Outcomes	Operations management issues
ONE	descriptive	goods v /s services	services are different	growing awareness of the importance of service, customer operations and customer contact
TWO	conceptual	characteristics of service and service management	conceptual frameworks	challenge to existing operations paradigms and the development of “customer operations”

Between 1980 and 1985, there was a surge in “high interest and enthusiasm” for services. It was widely acknowledged that services were distinct from products (but the dispute raged on). Many important issues were debated during this “scurrying about” period. The study was mostly conceptual, with the development of frameworks to aid in the understanding of service and service management characteristics. Academics in service operations continued to work on “customer operations.” In the other functions, this focus on the client and the service interaction was expanding at a rapid pace.“ The critical event as a tool for assessing the service encounter,” “Boundary spanning role employees and the service encounter: some guidelines for management research” and “Perceived control and the service encounter” are some of the publications on this topic.

Academics in the field of operations were also breaking new ground by offering fresh insights on old topics. For example, Wyckoff (1984) published “New Tools for Achieving Service Quality,” which may be regarded as an early TQM study. The first two texts on service operations management were written during this period.

“The service sector: challenges and imperatives for research in operations management” and “Service operations management: research and application”. were the first “challenge” papers on service operations research.

Stage two was distinguished by the fact that service research looked to have broken loose from its product-based foundations. There was also an acknowledgement of any reference to the work done by other disciplines conducting service research.

The well-regarded study by Parasuraman, “A conceptual model of service quality and its implications for future research,” was the apex of this age. This was a significant step forward in developing service management as a cross-functional subject. Service quality was an issue that all the different functional areas saw as vital and could contribute to. This seminal article (and subsequent research by the authors) sparked not only a flurry of activity in the marketing department but also threw down the gauntlet to the operations department, as it became clear that other functional areas had important things to say about a topic that had previously been viewed as “operations.” In striking contrast to the Statistical Process Control (SPC) approach, it was also a different approach to quality. This was also the case when marketers latched upon Shostack’s essay “Designing services that deliver” when they moved into process mapping, previously a cornerstone of operations management.

However, interest in domestically oriented service operations has not waned.

There was also an acknowledgement of cross-functional difficulties in publications like “The Employee as Customer”, and a text by Eiglier and Langeard Servuction called “Le marketing des services,” which merged aspects of marketing and production. We also saw the creation of what is thought to be the first service management text. The service management field gained prominence by establishing two journals, The Service Industries Journal in 1980 and the Journal of Professional Services Marketing in 1985.

This was a phase in operations when the nature of service and service operations were classified as a precursor to the development of tools and concepts. Among the dimensions are customer interaction time, degree of customization, front-office judgement, whether the value was added in the front or back office, and the operation’s product or process focus (Johnston and Morris, 1985). Following these conversations, service operations were divided into three categories: mass, professional, and service shop.

Stage Three — The Service Management Era:

The cross-disciplinary nature of service research, which Brown referred to as the “walking erect” stage of the development of the service movement, has been characterised by a coming together of disciplines in the third stage of the development of the service movement, which Brown referred to as the “walking erect” stage. In particular, marketing, operations, and human resources management brought their diverse capabilities and views to bear on issues of common concern. This was the era of service management (as opposed to service marketing or service operations) from roughly 1985 to 1995, a subject whose strength lay in its cross-disciplinary nature and approaches. The International Research Seminar, hosted by Eric Langeard and Pierre Eiglier of the University of Aix-Marseilles; the Quality in Services (QUIS), held alternately in Sweden and the United States; and the Frontiers in Service Conference, held at Vanderbilt University in the United States, began.

Stage	Nature of research	Focus of research	Outcomes	Operations management issues
ONE	Descriptive	Goods v/s services	services are different	Growing awareness of the importance of service, customer operations and customer contact
TWO	Conceptual	characteristics of service and service management	conceptual frameworks	challenge to existing operations paradigms and the development of “customer operations”
THREE	Empirical	development and testing of frameworks	a large amount of service material based on new cross-functionally derived models	development of service processes, quality, failure, design and technology with a view that service could contribute to manufacturing

This stage’s research mainly focused on empirical testing of ideas and frameworks that resulted in underpinned and tested models. New conceptual frameworks and concepts emerged, laying the groundwork for new empirical research. This was unquestionably a watershed moment in the evolution of the subject. According to Chase, this is the “theory testing / empirical era,” in which we “have been going from constructing conceptual frameworks to refining their dimensions and empirically validating them.” This stage of development appears to have been dominated by industry-specific studies, survey research, and case studies.

Stage Four — Return to Roots?

We have entered a fourth stage, which may be regarded as the ultimate step in developing a “mature” subject and has been evident since 1995: the desire and ability to prescribe (Johnston, 1996). A stage at which a significant portion (but not necessarily all) of the material can be taken and applied and the consequence of that application can be predicted (see, for example, Berry, 1995; Heskett et al., 1997; Rust and Oliver, 1994). For example, Collier (1994) has been working on models highlighting the link between perceived service quality and operational success. Heskett et al. (1997), Rust and Oliver (1994), and Voss and Johnston (1995) have conducted empirical studies to understand better the relationships between operational drivers like quality, employee satisfaction, and internal quality and outcomes like profit and customer satisfaction. This type of activity appears to be expected to continue for some time.

Stage	Nature of research	Focus of research	Outcomes	Operations management issues
ONE	Descriptive	goods v/s services	Services are different	Growing awareness of the importance of service, customer service, and customer contact
TWO	Conceptual	characteristics of service and service management	conceptual frameworks	challenge to existing operations paradigms and the development of “customer operations”
THREE	Empirical	development and testing of frameworks	a large amount of service material based on new cross-functionally derived models	development of service processes, quality, failure, design and technology with a view that service could contribute to manufacturing
FOUR	Applied	prescription	linking operations drivers to outcomes	the return to roots – the need to re-focus service operations towards traditional operational issues and approaches

However, a new wind of change is blowing, and the earlier trend of cross-functional work appears to be reversing. We see certain contradictions between the functions. Indeed, rather than seeing a continuation of the overlapping of marketing, operations, and HRM, for example, it is proposed that we are experiencing their separation. The urge to re-establish the service material inside the key disciplines is driving this development. Academics have focused on the material and approaches shown in the circles in the last column of the Table as if we have lost or misplaced our established roots. We appear to have been swept along by a wave of interest in primarily customer-focused service. While there is nothing inherently harmful or wrong about this, we appear to have overlooked the power of our main discipline. For example, in service quality, we appear to have focused on customer-based ideas of service quality while ignoring the quality of conformity and delivery of customer-based quality, which are unquestionably important issues for operations managers and academics.

We appear to have followed the blueprinting movement in service design, but we have overlooked the design process in favour of this descriptive activity. We also appear to have overlooked the linkage between crucial and frequently overlooked back-office activities and customer-facing operations.

A Service Operations Management Agenda:

An attempt has been made to build an agenda due to the increased awareness of the need to re-operationalise service management material. This section identifies potential study questions and issues, focusing on the key operational concerns.

Linking operational performance to business drivers:

There is a growing awareness of the importance of linking business drivers such as leadership, customer orientation, and more operational issues such as benchmarking, quality control, and service design with their impact on business performance, building on the work of Voss and Johnston, Roth, and Heskett’s pioneering work on the service profit chain. Even though the work described above has made great progress in this area, much more must be done. There is growing interest in using the Baldrige criteria and the UK / European Foundation for Quality Awards on this side of the Atlantic, indicating strong practitioner interest in this area. Chase highlights the importance of operations in this transition: “Service operations is the proper discipline to begin to take the company from its current emphasis on reengineering to the next stage – revenue enhancement” (Chase, 1996). The following are two significant research questions:

(1) What are the most effective operational profit levers, and when should they be used?

(2) Can the relationships between the control and outcome variables be plotted?

Performance Measurement and Operations Improvement:

Despite significant progress in performance measurement, many organisations appear hesitant to assess and develop their performance measurement systems objectively. Although a significant step forward for many organisations, the balanced scorecard has contributed to complacency after an organisation and its SBUs have established measurements that fit all four boxes. (One company was thrilled to have generated new metrics such as “number of staff training days” and “number of processes benchmarked,” with little worry about whether these efforts resulted in any improvements):

How can we create frameworks to assist organisations in evaluating the nature and impact of performance measures?
When is it permissible to use historical metrics and targets, and when is it better to use externally based targets?
Do TQM-style continuous change programmes produce better or faster results than extreme step change improvement programmes?
Does benchmarking produce the desired results, or does it devolve into endless and fruitless conversations about “apples and pears” or “industrial tourism”?

Guarantees, Complaints and Service Recovery — Tools for Performance Improvement:

Much of what organisations do in complaints and recovery has devolved into marketing gimmicks. In certain organisations, complaint procedures have evolved into methods for unsatisfied consumers to receive tokens or modest payouts. Guarantees often appear to be little more than your legal rights or an “opportunity” to buy insurance so that the vendor isn’t bothered if the goods or service fails (and so is unaware of the in-built problems of their products or services). Service recovery appears to have devolved into a reactionary process, with employees carefully listening to, sympathising with, and then compensating customers but never addressing the underlying issue:

How can we correlate complaints and failures to organisational improvement?
How might organisational learning grow from mistakes?
How can businesses proactively identify and correct errors before their customers notice (or worse, don’t notice)?
What constitutes reasonable service assurances, and how can they be implemented?
Is there any evidence that complaints, guarantees, or service recovery motivate organisational improvements?
What are the best methods for capturing and using knowledge?

People Management:

Despite some good contributions to the FIRM literature, operations academics must return to their roots and focus on job design. The issue is not knowing what customers anticipate, such as empathy, reliability, and certainty, but providing it month after month, week after week, day after day, and hour after hour. (A recent BBC documentary depicts one Australian straight male prostitute serving his clients hour after hour, sometimes for weeks at a time.) We must comprehend how all employees can provide continual and consistently high levels of service, as well as how to develop jobs and inspire personnel to accomplish this:

What are the most important operational service competencies?
How can we cultivate those skills?
How can operations managers keep front-line staff’s enthusiasm and commitment high?
What can be done to ensure a consistent level of service?

Service Design:

Although the literature’s service design models are heavily based on product design procedures, there is evidence that product design procedures are not applied or even applicable in service scenarios. Do we have a good understanding of how services are designed from conception through consumption and how existing product-based models might be used?

What is the definition of service design?
How does a notion of a service become a service?
What is the definition of a service concept?
What are the most efficient ways to create a service?
What are some good design strategies and tools?
For a client, seamless service is a beautiful idea, but how does one achieve this in most “silo-based” organisations?

How can the Internet be used to develop new services, including virtual services and the usage of virtual reality simulations in service

What is the best way to capture the technological characteristics of the twenty-first century?

Service Technology:

There are a few well-recorded cases of technological disasters, but many more examples of technological success are less well-known or documented. One cause for failure is that technology is frequently slapped on top of inefficient, out-of-date operating processes in the hopes of solving underlying issues. Unfortunately, there is no information in the service literature concerning the challenges of incorporating new technology or any classification of the many types of technology in use. Managers also appear to have difficulty determining new technology’s “true” impact. Furthermore, it does not appear that investments in service technology have considerably decreased service prices. This is referred to as the “productivity conundrum” by Brunsdon and Walley:

What are the different types of service technologies, and what is their impact?
What are the challenges that come with integrating new technology?
What are the determinants of success?
What is the link between technological investment and cost reduction?

The Design of Internal Networks

Internal Network Design is a field of study that focuses on the design of internal networks. Internal service encounters are defined by Gremler et al. as the didactic interaction between an internal customer and an internal service provider. On the other hand, the literature on supply chains has shifted away from such essential links and toward the concept of networks of interactions. Future studies in the internal customer chain should be based on this network strategy. Is it possible to apply external quality and customer satisfaction concepts to internal supply chains? According to Slack, internal customers cannot be handled the same way as external consumers. External customers, on the whole, operate in a free market, however this is not always the case. Many of the present concepts of service quality and performance evaluation from an external customer perspective (e.g. customer satisfaction) have found little credence in internal customer-supplier partnerships because the internal client is often a captive customer. This appears to be changing as more companies consider contracting out internal services:

Is it possible to build supply chain networks within businesses?
How well does the quality of service translate to internal supply chains?
How do internal service quality and employee satisfaction relate to outward service quality and customer satisfaction?
How can businesses determine the cost and benefit of internal services?

The Customer Service Experience

The service encounter is at the heart of service delivery, but how much do we know which scripts, attitudes, and behaviours to use to accomplish the desired result? How do we ensure that each interaction in a service process properly impacts consumers’ perceptions of service quality?

What are the “right” scripts for various service types?
Do we understand how to plan and manage the interactions that comprise the service process?

Managing Service Capacity

In terms of employee scheduling, there is some effort in the management of service capacity. Demand and supply management strategies in service operations have also been documented; nevertheless, little progress has been made since Sasser’s first publication in 1976. Nonetheless, this is a critical aspect of service planning and control. Another issue that has been the focus of early inquiry is the relationship between capacity and service quality. It is now possible to extract experimentally these functions and analyse strategies for effective resource utilisation connected to needed quality levels, thanks to Clark and James’ conceptual models of intuitively derived links between resource utilisation and service quality:

What are the best capacity-building strategies? What is the relationship between customer contact and different sorts of strategies?
What is the relationship between capacity levels and capacity initiatives and the quality of service delivered?
What are the best ways for businesses to manage their quality-capacity relationships?

Any country’s main economic activities are manufacturing, service, and agriculture. Manufacturing and services together account for roughly 75% of India’s GDP. Furthermore, expansion in these sectors of the economy has accounted for the majority of GDP growth in recent years. The ratio of services in GDP has consistently increased over the last ten years, from around 40% to around 51%. In 1994-95, the Union Government began taxing three services. The number of services taxed has continuously increased, reaching 71 in 2004-05.

This points to the growing importance of services in the Indian economy and the need to use management principles to plan and supervise service operations. Specific difficulties relevant to different sectors of the service industry are also discussed, in addition to the design and operational supervision of service activities.

Paradigms in Service Marketing:

Many countries, like India, have increasingly emphasised the importance of services in economic development. Most Western countries have reached or are soon to enter what is known as a service economy or service society. When the service sector contributes more than 50% of the nation’s GDP, the economy is referred to as a service economy. The United States was the first to declare itself a service economy in 1948, with the service sector accounting for around 53% of the nation’s GDP. Almost all affluent countries, as well as many developing countries, are transitioning to service economies. There is a claim that figures on the contribution of the service sector in many nations are grossly understated since services performed by makers of items in the industrial sector are not included. As a result, a sizable “hidden service sector” is not categorised as such.

In many ways, services are becoming a significant source of prosperity for economies. With the expansion of the service industry, economies saw a surge in income and employment. While manufacturing employment is declining year after year, service sector employment is increasing faster. Unlike the industrial sector, the service industry has maintained employment during economic downturns. Quinn and Gagnon found that the service sector makes significant contributions to the economy in other ways as well:

People value services at least as highly as manufactured goods. Services are not considered after the good needs have been met.
The value added by service firms is comparable to and even higher than, the value added produced by manufacturers of goods.
The service sector is at least as capital-intensive as the goods sector, and many service industries have a high technology impact.
Service industries tend to be just as concentrated as manufacturing, and service firms tend to be sufficiently significant in scale to be important and sophisticated buyers.
Service industries develop productivity increases that are big enough to support continuing real growth in per capita income.
The most traded services internationally are Tourism, Transportation, Financial Services (Banking and Insurance), educational training, and business services.

Reasons for Growth of the Service Sector:

The reasons for the growth of the service sector can be broadly categorised into two. They are:

Growth in intermediate demand from firms.
Growth in final demand from customers.

Growth in Intermediate Demand from Firms:

When line managers performed poorly in decision-making linked to operational activities and business growth, manufacturing companies realised the necessity of staff function. Manufacturing companies began bundling various services such as sales, marketing research, advertising, labour welfare, HRD, financial consultants, strategic advisers, etc. With the rise of competition, organisations were obliged to seek specialised services due to the rapid shift in customer exposure and expectations. They began unbundling organisations and sourcing services from outside sources where highly professional and specialised services are offered at a reasonable cost. As a result, a great number of service organisations have sprung up all over the globe.

Growth in Final Demand from Customers:

Direct demand from customers for a variety of services is increasing. Societal developments have changed people’s attitudes toward life. The marginal utility of products declines, at least in a relative sense, while the importance of services rises. People are spending an increasing amount of money on services.

The causes for the increase in demand for services directly from clients are as follows:

Increase in affluence:

The majority of people in established economies, as well as significant segments in developing economies, are getting more rich each year. With their expanding affluence and need for various products and services, India’s 250 million middle-income families are luring many global corporations to the country. The desire for personal services, travel, tourism, entertainment, clubs, and other amenities is heavily influenced by society’s wealth. How will a traveller carry his stuff if he is short on cash? He will hire a porter to do the same job if he has enough money. Self-service is limited due to affluence, yet many service persons and organisations benefit.

More leisure time:

People worldwide are attempting to gain more leisure time to devote more time to personal and family activities. Even in India’s semi-urban and rural areas, there has been a considerable shift in how vacations and leisure time are defined. People are now spending time on education, training, skill development for themselves and their children, touring, entertainment, personal care, and other activities instead of eating full of excellent food, sleeping in bed for extra hours, playing cards, and chitchatting.

Working women:

In many economies, the percentage of women employed is rising yearly. They can no longer be dismissed as mere housewives inferior to men. They proved beyond a doubt that they are comparable to, if not superior to, males in many areas. Working women are burdened with both domestic and office responsibilities. They are looking for services that will greatly minimise their strain. They have more money to spend on services because they are in the double-income group. As a result, demand for crèches, babysitting, domestic help, health and fitness services, special education programmes, and other services has increased.

Increase in the population of DINKS:

DINKS are a double-income group without children. It’s not as if the couple can’t have children because of physical issues. It’s possible that the couple doesn’t try to have children because they’re both careerists. They may put off having children during the first few years of marriage due to work pressures such as probable promotions, transfers, and time constraints. The procrastination continues until they realise that they will not have children. Marriage is viewed as a short-term union in some civilizations with a high divorce rate. In such communities, neither the male nor the female prefers to bear children whose future may be jeopardised if marriage fails. The population of DINKS is increasing in many developed cultures. The DINKS are wealthier, and future generations do not require savages. As a result, they lavishly spend on services.

Longer life expectancy:

People’s lives have been extended due to economic growth and rising living standards. As a result, the elderly population is increasing significantly. Take India, for example, where the population over 60 climbed from 14.13 million in 1981 to 54.69 million in 1991. By 2001, it had grown to 75.7 million people. While the predicted growth rates for the 0-14, 15-34, and 35-59 age categories are 6.26, 20.07, and 29.75 percent, respectively, the growth rate for those over 60 is 38.42 percent. With the ageing population, there will be a greater demand for nursing homes and health care services.

Increased product complexity:

The rapid pace of technological change is providing society with an increasing number of new items. In comparison to previous generations, human beings today identify a wide range of requirements. In everyday life, the current generation uses various technologically advanced products. They require trained technicians to maintain complex products such as computers, vehicles, televisions, kitchen appliances, etc. As a result, the demand for such services is steadily increasing.

Greater life complexity:

People in modern society often feel like they are living nine lives since they are compelled to perform multiple parts of each day’s activities. Such a service, which can share or minimise the strain, is in high demand. As a result, income tax consultants are in higher demand, as are legal advice, counselling, employment services, labour supply services, babysitting services, and so on.

More significant concern about resource scarcity and ecology:

Most of the population has limited financial means, but they desire various services. Financial strength is required to own a tangible for many services. Conversely, individuals may not be able to use all of them to their full potential. As a result, recreational services such as car rentals, computer hardware rentals, lodging, and door-to-door service are in high demand. Many economies have expressed concern about the environment and ecological balance in recent years. Governments of various countries sponsored many public organisations to preserve the environment from pollution and other threats and sustain the ecology through forest conservation, animal, bird, insect, and other vital species protection. They have been promoting through various media and implementing several programmes to encourage people to engage. Van Mahotsav, water conservation, and other projects are examples of this.

Increasing number of new products:

In recent years, consumers have been exposed to various options. The lifespan of products and services is decreasing because of the rapid introduction of new or enhanced products. Because they are preoccupied with a variety of activities, consumers cannot completely understand a product or service before making a purchasing choice. As a result, consulting services are in high demand. For example, if a person wishes to invest in stocks, the stock market’s complicated information inputs will most likely cause him to be confused and uncertain. The broker or consultancy service aids in the smooth running of the procedure.

The new youth/young:

It has been found that the younger generation uses more services than the older generation, while the older generation relies on themselves for various tasks.

Only by consuming various services can the younger generation cope with the tranquillity of change. For example, a computer graduate can teach himself new languages, but it will take a long time. There’s a chance that the application will be outdated or well behind his competitors by the time he gains skill in it. As a result, people want to receive training from an institution to remain competitive.

India has been following a well-thought-out strategy to achieve economic growth and development. In order of priority, the economic activities to be developed were divided into three categories. The elementary, secondary, and tertiary sectors are the three. Agriculture, animal husbandry, fishing, and forestry are all part of the primary sector. These areas are fundamental and are the foundation for the economy’s future growth. Manufacturing and construction are examples of the secondary sector. Services, including distributors, are included in the tertiary sector. These three industries have been given priority in terms of funding and development. The primary sector received more attention in the first three Five Year Plans, while the secondary sector received more attention in the next two. As a result, the service industry began to expand.

Growth and Reason of Service Sector in India:

The contribution of the services sector to the country’s Gross Domestic Product (GDP) is one of the most important growth indicators. When considering services for this purpose, two key aspects must be considered. They are the unorganised sector’s hidden services and services. The services that industrial companies utilise internally are known as hidden services. The value of such services is included in the output of physical items. As a result, the value of such services is hidden and accounted for as the value of tangible commodities when calculating GDP. A vast number of services are not included in the output assessment used to calculate GDP. Personal services, maid services, and a variety of professional services such as barbers, carpenters, washers, men, goldsmiths, priests, and nurses have centuries of history in semi-urban and rural India. These services are prevalent in practically every section of the country, but no formal accounting system is in place to measure the value of output.

Except for these two critical aspects, service production is valued for GDP purposes. In 1950-51, at the beginning of the planned era, the agriculture sector accounted for 57.1 percent of the country’s GDP. Services are in second place, accounting for 28.6% of GDP, while industry accounts for 14.3% of GDP. By the end of 2000-01, the proportions of these three sectors had shifted significantly. Agriculture’s proportion of GDP has dropped to 24.7 percent, the services sector has overtaken agriculture as the most significant contributor with 48.8% of GDP, and industry has a 26.4 percent share of GDP. Year after year, the service sector’s portion of the economy grows. In 2006-07, the three sectors accounted for 61.8 percent of the total, 19.7 percent of the total, and 18.5 percent.

Reasons for India’s Service Sector Growth:

The rise and development of India’s service sector can be attributed to several changes in the economy and society. In his book on Services Marketing, K. Rama Mohan Rao listed the following important characteristics that aided the expansion of India’s service sector:

Economic Affluence:

An increasing middle class characterizes the Indian society. In addition, the liberalization of the Indian economy has positively impacted Indian households. Their income and expenditure have been pushed up, fostering the demand for goods and services;

Changing Role of Women:

Earlier, women were neglected and only had to carry out household chores. But with time, there has been a change in our way of thinking. Women are educated and allowed to work. They are employed in several erstwhile male-dominated services such as defence services, police services, postal services, software services, health services, etc. An increase in working women has led to the creation of a market or several products and services.

Changing Culture:

The traditionally common joint family system is slowly disintegrating and making way for a nuclear family way of life. This has been accompanied by an increased demand for a number of services like education, health care, entertainment, tourism, etc. There has also been a marked change in a person’s way of thinking with respect to investment, recreation, and time perception, leading to increased demand for services.

Growth of the IT Sector:

In India, information technology and business outsourcing are amongst the fastest-growing sectors, with a cumulative revenue growth rate. The growth of the IT sector can be attributed to several factors, such as increased specialization and availability of a large pool of low-cost, highly skilled, educated and fluent English-speaking workers. This supply is matched by increased demand from foreign customers interested in India’s service exports or those looking to outsource their operations.

Development of Markets:

Urban and rural areas have witnessed widespread retailing and selling. Retailing has even extended to remote rural areas.

Health Care Consciousness:

The present generations are becoming more and more conscious of diet and health. They are resorting to the services of gymnasiums and fitness clubs to maintain their physical and mental health.

Economic Liberalization:

A disinvestment policy followed the opening up of the Indian economy in 1991. This facilitated the entry of multinational Corporations, leading to an accompanying increase in demand, which acted as a spurt for the development of the service sector.

Migration from Rural to Urban Areas:

With rapid industrialization and other developments in this era of globalization, there has been large-scale migration from rural to urban areas. This has changed the lifestyle and enhanced the demand for services.

Export Potential:

The services India offers to various parts of the world include banking, insurance, transportation, company data services, education, software services, tourism etc. Tourism and software services are among the primary foreign exchange earners of the country.

Service Tax:

The coverage of this tax has been extended. The tax net covers hotels and restaurants, transport, storage and commercialization, financial services, real estate, business and social/personal services.

Curriculum

Service Marketing and Management