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Concept of Service Operations Management (SOM)

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This chapter provides a summary of literature by earlier researchers in similar study topics. The particular areas covered herein are the theoretical foundation of the study that will review the concept of service operations management (SOM); a review of the professional services industry in Kenya; and the concept of workforce productivity.

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Service operations management (SOM) definition stems from the broader definition of operations management, which has been described as the responsibility of ensuring that business operations are efficient in terms of using as few resources as needed, and effective in terms of meeting customer requirements. In a broad sense, service operations management is concerned with efficient utilisation of resources in service firms; human resource, technology, equipment, space and materials in just to name a few. While operations management in manufacturing sector is largely concerned with efficient and effective utilisation of machinery and equipment, in the service industry, this is largely concerned with efficient and effective utilisation of the human resource and technology.

Services have been termed as fundamentally dissimilar to manufactured products based on several key characteristics. According to Nie and Kellogg (1999), services have unique features that are not found in manufacturing, most notably being customer contact, intangibility, inseparability of production and consumption, heterogeneity, perishability, and labour intensity. The impact of these features can affect the influence of operations management interventions in determining business success. Owing to this, various scholars have suggested an integrated approach in service operations and delivery to ensure that customer expectations are met. One such scholar is Griffen and Hauser (1993) who emphasized the usefulness of integrating the voice of the customer into service businesses. This is the foundation of service operations management as an open system – given the degree of customer participation in the production and delivery process, contrary to manufacturing. The figure above depicts the prominence of customer engagement in a service operations model.

In the past decade, the service sector has been seen to be the fastest growing industry in many economies. This, coupled with the need to improve service production and delivery; and the upsurge in the research of service operations (Smith et al) makes this a fertile area of research. There has been continued interest in understanding how operations management related interventions have impacted the operational performance of service companies.

Operations in service industry largely concerns resource capabilities and scheduling; and management of the service process. These two will have a large bearing on the efficiency of the firm’s service production. Quality and efficiency are primary concerns affecting every service operation. (Warren et al, 2008); and thus special attention has to be given to managing the quality and quantity of output. Currently, the market imposes high efficiency expectations to service firms, and those that fail to meet these expectations are quickly competed out of business. A careful optimization of the internal resources, including the human resource is therefore required to maintain a competitive edge. This also has to be coupled by continuous improvement of the processes and routines of the firm. Knowledge management, capacity building and efficient utilisation frameworks will therefore play a pivotal role in service firms to ensure this is achieved.

Service firms have also been recognised as a key source of competitive advantage; and thus signifying the field of service operations management (SOM), which is now an intriguing management area that cuts across other disciplines such as human resource, marketing and operations (Chase, 1996). According to other scholars (Pannirselvam et al., (1999); Johnston (1999)), service operations management has received much attention and interest by researchers and practitioners, with the belief that a strong focus on operations management interventions can provide a competitive edge in service organisations. It is therefore timely to investigate workforce productivity as one of the operations management practises in professional service firms and determine the impact of this to the operational performance of the said firms.

Overview of Professional Services Industry in Kenya

Services continue to drive many economies, particularly those of developed nations (Vargas and Manoochehri. 1995). They provide the single largest avenue for revenue generation and maintaining margins (Brechbühl, 2004). In Kenya, the service sector has experienced exponential growth rate ahead of manufacturing, agriculture and other industries/ sectors. According to the 2015 World Bank Journal on Kenya’s Economic Outlook, the services industry accounted for 58% of the country’s GPD in 2011, with Manufacturing and Agriculture contributing 19% and 23% respectively.

Professional services firms are part of the large service industry; and these are any organisations that provide customised and specialised knowledge based services to their clientele. Such services include those provided by lawyers, auditors, accountants, financial advisers, architects, engineers and other business consultants. This research has focused on large professional firms by number of employees and revenue. In Kenya, some of these firms operate under a global network; while others are locally instituted and owned.

Ernst and Young (EY), Price Waterhouse Coopers (PwC), Delloite and KPMG, also known as the ‘Big Four’, are the largest professional services firm networks in Kenya providing services in audit, accounting and book keeping, taxation, investments, corporate finance and advisory services. These belong to a network of international professional services providers, including others such as McKinsey Consulting and Grant Thornton. These networks are highly developed due to their compliance to certain international regulations and requirements such as the Securities and Exchange Commission (SEC) of public company audits in the United States of America (USA). Other players in the same industry include PKF Consulting and other smaller entities such as Manpower Consultants and Sellwood Consultants.

Another group of large consulting firms in Kenya are the law firms; with the major firms being Anjarwalla & Khanna, Coulson Harney Advocates, Daly & Inamdar Advocates, Hamilton Harrison & Mathews, Iseme, Kamau & Maema Advocates (IKM), Kaplan & Stratton Advocates and Mohammed Muigai Advocates among others. These firms provide legal services in the areas of Litigation and Arbitration, Conveyancing and Property Law, Commercial Transactions, and Legal Advisory and Consultancy in various sectors. Most of these firms are set up in Kenya, but have extended their services to Eastern Africa. The services provided by these firms have changed by the years. Practitioners are now focused on specialisation into fields such as environmental law, mining, intellectual property, company law and property law, among others. General practitioners are becoming extinct. This specialisations have provided a new and more efficient approach to the legal practise.

Besides the legal and business consultants, other professional service firms in Kenya include architectural and engineering firms. However, these are yet to grow to the size of the firms mentioned above.

Concept of Workforce Productivity

Workforce productivity (also known as employee or labour productivity) is a measurement or assessment of the efficiency of a worker or team of workers. Kişoğlu (2004) also defined productivity as the relationship between the output generated by a production and service system and the input provided to create this output. Productivity may be evaluated in terms of the output per employee for a specific period of time relative to a standard measure; or relative to the peers doing similar tasks.

Unlike other industries, professional services firms sell knowledge and expertise; not tangible, physical products. These firms therefore experience different needs and challenges. The constructs of “standardization” and ‘mass production’ are not easily feasible in such set ups. Profitability of professional services firms is derived from ‘face-time’ or the billable/ chargeable hours that the staff put into their client’s work. The firm is profitable only when the staff members bill hours to clients. Keeping everyone productive, is therefore extremely important. Scheduling of staff on tasks has to be carefully done to achieve this. Workforce productivity is the engine of all other productivity results (Uğur, 2003). For consumers of a service, productivity reduces prices and improves quality. As for employees of the firm, productivity is the most effective source of pay increase and it also improves income distribution and ensures job security (Uğur, 2003).

Factors affecting workforce productivity

In service organizations, workforce productivity is largely determined by how well employees are motivated towards achieving the organisational goals. Various factors have been identified by various scholars to affect workforce productivity; such as work environment, reward and recognition authority and responsibility, communication, team spirit, among others.

According to Davis (1989), factors affecting workforce productivity can be categorised as follows:

  • Managerial and Organizational Factors – Pay, working hours, promotion system, authority and responsibility, managerial behaviours and participation in management, personnel status, communication, reward and penalty, work design, education and self-development.
  • Physical Factors – Lighting, colour, noise, thermal comfort, ventilation and humidity.
  • Technical Factors: Workplace design, technology, hygiene and cleaning services, machinery, devices and materials.
  • Social Factors – Transportation, social activities and facilities.

Smrita et al. (2010) wrote that the development of good culture in the organization affects employees’ level of motivation. Mokaya et al. (2013) found that factors like working conditions, remuneration and promotions play important role for employees’ level of job satisfaction. Goudswaard (2012) highlighted work life balance, motivation level psychological conditions, social dialogue, management and leadership coherence, transparency develop a good working environment and a good working environment leads to increase organization productivity. Ollukkaran and Gunaseelan (2003) related employee engagement with their working environment to productivity. Biçerli (2003) also stated that Technology is a major factor that increases workforce productivity by improving staff efficiency.

In 1959, Frederick Herzberg developed a two-factor theory that speaks to employee motivation and productivity. In his theory, Fredrick came up with factors that are likely to cause employee satisfaction at the work place, and these he called the motivators. He came up with another set of factors that could lead to employee dissatisfaction and thus low performance, and these he called hygiene factors. The schematic below has been used to illustrate this theory.

Measures of workforce productivity

Ensuring and assessing productivity in a firm can be challenging. A survey conducted in 2013 by Gallup Inc. revealed that about 70 per cent of workers in the USA are disengaged from their work day. This is due to distractions such as social media, personal email accounts, online shopping, demands of their own personal lives, among others. This disengagement leads to poor productivity. The employer pays for 100 per cent of the employees’ hours but this is not all utilised for the employer’s work. Measuring workforce productivity therefore becomes the way to get insight into what amount of human capital a firm is actually using; or needs.

For a manufacturing entity, this may be simplified by simply counting the number of product produced per day by the staff. An example is a bakery – given that the equipment is properly functional, an employer may expect a baker to produce 400 loaves of bread per day. This then becomes a measure of the staff’s productivity, so that when he or she does less, then they become less productive and vice versa. However, this is not so in service firms where the output is not tangible and may not be ‘counted’ in definite numbers. For this reason, service firms require more sophisticated methods and tools to measure their workforce’s productivity levels.

Some service firms may measure individual productivity based on the number of customers served, or the amount of revenue generated, or number of tasks completed per employee among others. While these are viable methods, they are also not feasible for professional services firms, given that in these firms, tasks accomplished are huge and therefore shared amongst a team of consultants. While the firm may then be able to determine the productivity of the team, better methods may still be required to break this down into individual staff productivity.

As a starting point to determining the methods, most firms will first outline the objectives and expectations from each staff, which stem from the firm’s overall strategic plan. The aim is to develop measures that will nature organisationally desirable behaviours and performance vision. This relationship is illustrated in the model below. (Werther et al., 1986)

Most recently, professional services firms have introduced time management methods to measure individual productivity. The time management method determines employee productivity by recording how they use their work time. When done correctly and with the necessary controls, this methods provide an accurate revelation of how much time is spent in accomplishing tasks. There are helpful software programs that support this by tracking how much time employees actually spend or don’t spend being productive. These programs require data to be input by the staff themselves, or their supervisor, or both. Common programs will measure the employee’s productivity score; and chargeability or billable score. A productivity score is a measure of how much of the employee’s time was spent on productive work. The definition of ‘productive’ is set by the firm, and a code is set for each task, clearly identifying it as productive or non-productive. A chargeability score is a measure of how much of the employee’s time is spent on actual client work – which means time that will be charged or billed to the client.

Most firms have thence determined their expectation from each staff on what the probability and chargeability score should be. This then assists the management of the firm to evaluate which of its staff are most ‘useful’ and which ones are not. This then goes into the operations decisions of the firm.

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