A TYPOLOGY OF DE-COUPLING STRATEGIES IN MIXED SERVICES

Group - 6

Sneha Satyamurthy (162)

Sudeshna Gupta (168)

Suhaas Sharma (169)Sumit Choudhary (171)

Vaibhav Bansal (183)

Vaishali Bansal (184)

IntroductionServices: ”Any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything” – Kotler

• Pure Services : where customer contact is unavoidable. e.g.,

health centres and personal services.

• Mixed Services : where de-coupling takes place. Customer end

is called front-office. The service end is called back-office. e.g.,

branch offices of banks.

• Quasi-manufacturing : There is no customer contact. e.g.,

warehousing.

Introduction• De-coupling: Breaking a process into its component back and front-office activities, segregating those activities into distinct back- and front-office jobs, and, usually, geographically separating the back and front offices.

• Based on literature:• Extensive de-coupling is needed to increase

productivity.• More coupled approach is appropriate for other

strategic directives.

Current Case

• The de-coupling decision has more texture than the two

alternatives — that in certain business situations, de-

coupling is used to provide higher service, whereas in

other situations, a highly coupled approach is necessary

to lower costs.

• Example taken : retail bank lending industry.

• The focus is on the service system strategy of a firm

rather than the position of entire industries.

Typologies and taxonomies of services

• Ratio of customer contact time versus total service creation

time.

• The potential for efficiency is best when that ratio is small.

• Smallest in “quasi-manufacturing” industries.

• Highest in “pure services”.

• Degree of interaction and customization.

• Customer contact time per transaction.

• Degree of contact and complexity and divergence.

And many more…

Labour Intensity vs. Interaction and Customization

SERVICE FACTORY

Airlines

Trucking

Hotels

Resorts and

recreation

SERVICE SHOP

Hospitals

Auto repair

Other repair services

MASS SERVICE

Retailing

Wholesaling

Schools

Retail banking

PROFESSIONAL

SERVICE

Doctors

Lawyers

Accountants

Architects

Low

Low

High

High

Labo

ur in

tens

ityInteraction/Customisation

OPERATIONAL STRATEGIC FOCUS

Strategic ForceIt can classified among 2 dimensions – Service & cost

Porter’s classification of strategies

Chase & Acquilano’s classification of strategies

Cost

Quality

Speed

Flexibility

Cost Leadership

– Low-cost competitive strategy– Broad mass market– Efficient-scale facilities– Cost reductions– Cost minimization

Differentiation

– Broad mass market– Unique product/service– Premiums charged– Less price sensitivity

Cost-Focus

– Low-cost competitive strategy– Focus on market segment– Niche focused– Cost advantage in market

segment

Differentiation Focus

– Specific group or geographic market focus

– Differentiation in target market– Special needs of narrow target

market

Risks of Generic Strategies

Risks of Cost LeadershipCost leadership is not sustained:• Competitors imitate.• Technology changes.• Other bases for cost leadership erode.Proximity in differentiation is lost.Cost focusers achieve even lower cost in segments.

Risks of DifferentiationDifferentiation is not sustained:• Competitors imitate.• Bases for differentiation become less important to buyers.Cost proximity is lost.Differentiation focusers achieve even greater differentiation in segments.

Risks of FocusThe focus strategy is imitated:The target segment becomes structurally unattractive:• Structure erodes.• Demand disappears.Broadly targeted competitors overwhelm the segment:• The segment’s differences from other segments narrow.• The advantages of a broad line increase.New focusers subsegment the industry.

Risks of Cost Leadership

Cost leadership is not sustained:• Competitors imitate.• Technology changes.• Other bases for cost leadership erode.Proximity in differentiation is lost.

Risks of Differentiation

Differentiation is not sustained:• Competitors imitate.• Bases for differentiation become less important to buyers.Cost proximity is lost.

Risks of Focus

The focus strategy is imitated:The target segment becomes structurally unattractive:• Structure erodes.• Demand disappears.Broadly targeted competitors overwhelm the segment:• The segment’s differences from other segments narrow.• The advantages of a broad line increase.New focusers sub segment the industry.

8 Dimensions of Quality

Cost Minimization Strategy It aims to achieve the most cost –effective way of delivering goods & services at the required level of quality

Back office work to be segregated from front office work in terms of people & location

Front office personnel should focus on the customer

Customer contact enhancing strategies should be employed in the front office.

Standardization of work in back office will result in cost reduction

In low contact service environment, where there is opportunity for de-coupling, manufacturing type of procedures are more appropriate

Above combination of cost minimization & high decoupling is termed as cost leader

Geographic separation in which back offices will be in a different location than the front office will provide an opportunity to exploit international wage differentials, tax treatments and better labor market for the back office.

Cost Minimization Strategy

In Kiosks strategy, back office is eliminated to reduce front office idle time & cut costs Benefits of effective cost minimization strategy are higher profit margins & high RoC

There are 2 approaches to cost minimization – 1) Strategic (based on business model) eg: locating production overseas

core activities vs outsourced

2) Tactical (focused on detailed functions) eg: choice of suppliers

Possible sources of cost minimization: 1) Lean production 2) Outsourcing non-core activities 3) Negotiating better pricing with suppliers 4) Simplifying processes & transactions 5) Pruning product ranges & customer accounts to eliminate unprofitable businesses 6) Aggressive control of overheads

Service (non – cost minimization) strategy

View 1: Focused professional approach

In this kind of strategy, decoupling is considered necessary as different workers have different aptitudes & worker-skills – 1) public relations for high contact purposes

2) Technical & analytical attributes for low contact Back office personnel are considered as experts in their specialized area

View 2: Personal Service

Eliminates back office, places back office tasks in front office.

In some situations, customer requests to the front office are related to the performance of the back office. This can be handled better if a person assumes both front and back office roles

TYPOLOGY DEVELOPMENT

Typology development

The objective of the model developed is to provide competitive positioning with respect to strategic operations focus and de-coupling activity.

Retail bank lending market has been used for analysis in the paper. Few of its characteristics are:

1. Involves money for personal and not business use

2. Loans taken to purchase a capital good, finance a vacation

Since loans have been there for a long time, it is expected banks

will have a dominant service delivery system.

BUT, that was not seen after the research was done.

ACTIVITIES INVOLVED IN RETAIL LENDING

Consumer may choose a particular bank because of:•Extensive pre- loan customer contact•General reputation or convenience of banking with a particular bank

Solicit applicatio

n

Document signing

Application processing-Employment verification-Credit check-Document preparation-Credit decision

Post loan processing- Payment processing- Insurance updating- Bad debt collection- Return of collateral documents

Line of visibility

UNDERSTANDING THE BACK OFFICE WORK

The myth of “instant loan approvals”

• Lot of back office work happens in loan processing, which provides opportunity for de-coupling.• Intensive marketing of immediate loan processing is only conditional. Almost every loan needs:

1. Verification of applicant’s credit history

2. Employment/ income verification

3. Other several legal documents

4. Collateral assessment (in case of collateral backed loans)

This is followed by customer signature on loan documents, and subsequent

interactions for pay-offs, damage to collateral checks, control on delinquents.

UNDERSTANDING THE QUADRANTSThrough responses to a questionnaire, the surveyed banks were placed in the identified quadrants of cost leader, kiosk, focused professional and personal service. Few of the characteristics could be seen as follows:

Personal Service•Keep coupled to enhance service•Very broad cross training•Broad product range

Kiosk•Keep coupled to reduce idle time• High contract worker• Technology used to reduce job complexity

Focused professionals• De couple to exploit employee expertise• Train for all processes in either front or back office• High contract worker paid based on commission

Cost leader• De couple to reduce costs• Train for specific tasks only• Technology used to reduce labour and standardize activities

There is no best quadrant or dominant market position — each represents a distinct strategic position. Each quadrant fits into corporate strategy and present a consistent set of operational, marketing and human resource policies that can provide the distinct competitive advantages of each quadrant.

THE COST LEADER STRATEGY

The Cost Leader strategyHigh de-coupling, Cost emphasis

Strategy Description

Cost reduction • segregate complex jobs into simple ones • reduce labour costs• centralization for scale of economies• eliminate the localized high-contact, commission-oriented

personnel

Example: Cost Leader Bank

Concern • build rapport with customers• reduce face-to-face contact

AmSouth

• A telephone call for all local Nashville branches is automatically routed to a

centralized call center over 100 miles away in Alabama.

• Loan operations are heavily centralized, faxing loan applications into a

single loan service center.

• Uses the prototypical Cost Leader approach to back-office tasks.

• Job duties are highly specialized with little cross-training, emphasizing

maximum task speed and, presumably, minimum pay.

• Branch personnel are divided between transactional personnel tellers and

personal bankers or customer service representatives.

• The bulk of their income is straight salary with a small 5% of salary being

commission-based.

• Commission structures should only be large enough to give an incentive to

provide an incentive for high-contact personnel technology is used primarily to

save labor.

Strategic conflicts

• Revenue generation can be difficult• Flexibility can be hurt as product lines are truncated• Regionally important, may not be significant nationally.• Special requests are also problematic.

• ability to provide the uniquely tailored services are drained

• Quality can be adversely affected as well.• Conflicts between front-end and back-end workers

• De-coupling is diametrically opposed to obtaining process speed.• The back-office portion of the service is similar to a manufacturing

bottleneck, it is operationally desirable to have an inventor

The Kiosk strategyLow de-coupling, cost emphasis

• Large numbers of small service units dot the landscape to enhance customer convenience while providing a limited product line at a low cost

• The product line is abbreviated• Personnel staffing in small service units is a difficult issue• Smaller facilities will suffer from idle time problems• Employees of Kiosk firms should be cross-trained

The Nashville Bank of Commerce

• Branches are located within grocery stores

• Usually two or three employees working at any time

• Open for business 51 h per week

• nearly 30% longer than the majority of banks in the area

• Some portions of the lending process are de-coupled and

centralized.

• Focus on standardizing tasks from a reduced product line.

Challenges faced

• The human resource challenge is also difficult.

• Conformance to quality.

• Maintaining and enforcing standards can be difficult.

• Extensive cross-training is essential.

• Employees are basically salaried with a small amount

available in incentives for loans booked.

IMPLICATIONS

Applicable Conditions for the typology to be true:

Differing competitive strategies of cost minimization and non-cost minimization strategies exist.

Front-office and back-office work can be de-coupled

IMPLICATIONS

Firms adhering more closely to ideal strategic types are more effective Formation of metrics to identify strategic congruence and results.

PROPOSITIONS

Firms that focus on one strategy are more effective than firms that attempt multiple strategies with same facilities Forming of departments within a department, like banks within a bank.

The level of de-coupling is not correlated with a strategy of cost minimization

PROPOSITIONS

The level of job complexity is not correlated with a strategy of cost minimization

Customization is not correlated with the level of de-coupling

PROPOSITIONS

Product line breadth is not correlated with the level of de-coupling

Response time is not correlated with the level of de-coupling

Kiosk firms offer fewer services than firms in other quadrants

PROPOSITIONS

Cost leader firms pursue labour replacing technology more than firms in other quadrants

THANK YOU!