An exploratory investigation of the interdependence ... · trial marketer’s interdisciplinary...

An exploratory investigation of the interdependence between marketing and operations functions in service firms *

Jayashree Mahajan, Asoo J. Vakharia %rl EIler Graduate School of Management, University of Arizona, Tucson, AZ 85721, USA

on (a) when marketing and operations personnel are likely to

depend on each other, and (b) whether differences in interde-

pendence arise between firms that focus on industrial clients

versus individual consumers. The paper concludes with a

discussion of the limitations and future research directions.

Pallab Paul

Introduction Richard 13. Chase C’niuersity of Southern California, Los Angeles, CA 90089, USA

Received January 1992

Final version received October 1992

To what extent are individuals performing “marketing”

and “operations” activities distinct from each other in service

firms? What are the key factors that determine the extent of

interaction between individuals performing “marketing” and

“operations” activities in a service organization? This paper

addresses these questions by drawing from literature in ser-

vices marketing, services operations, and organizational the-

ory. Based on this literature, several hypotheses are proposed

and empirically examined using data collected from a strati-

fied sample of 171 service firms. The findings provide insight

Correspondence to: Professor J. Mahajan, The University of

Arizona, Department of Marketing, Kart Eller Graduate

School of Management, College of Business and Public Ad-

ministration, McClelland Hall, Tucson, AZ 85721, USA.

The authors appreciate the helpful comments and sugges-

tions provided by Dipankar Chakravarti, Gilbert C.

Churchill, Jr., Erich A Joachimsthaler, A Parasuraman,

Arvind Rangaswamy, Robert W. Ruekert, Urban Wem-

merlov and Valarie A. Zeithami on an earlier version of this paper. The research was partially supported by funding

received from the Small Grants Program at the University of Arizona awarded to the first author.

Intern. J. of Research in Marketing 11 (1994) 1-15 North-Holland

An issue that is of growing importance in recent years is how the marketing function relates to other business functions. This is evidenced by studies that focus on the industrial marketer’s interdisciplinary role (Hutt and Speh, 19841, the marketing-finance interface (Anderson, 19811, R&D-marketing integration (Gupta et al., 1986) and more generalizable frameworks of organizational functioning (Ruekert and Walker, 1987). The rationale underlying this research trend is the recognition that marketing cannot be viewed in isolation but is an integral compo- nent of overall business functioning (Wind, 1981). Emerging new operations technologies (e.g., JIT and flexible manufacturing) and strategies (e.g., Total Quality Management) necessitate an investigation of the interface between the operations and marketing functions.

In service firms managing this interface is of particular importance due to unique fea- tures such as the presence of the customer in the system. This creates a dilemma as it is unclear whether individuals that produce the service (i.e., the “operations” function) should be different from those that deal witb customers (i.e., the “marketing” function). Prior research has suggested the need to

0167~8116/94/$07.00 0 1994 - Elsevier Science Publishers B.V. All rights reserved

2 J. Mahajan et al. / Marketing and operations functions in service firms

separate these two groups of individuals into a “back office” where the operations occur (Chase, 1983; Chase and Tansik, 1983) and the “servuction system” where the customer interacts with the system (Langeard et al., 1980). However, unlike manufacturing firms, interaction between individuals that produce the service and individuals that deal with customers is essential. The purpose of this paper is on identifying key determinants of the degree to which individuals that perform “marketing” and “operations” activities depend on each other in service firms. This issue is explored conceptually and empirically using a cross section of 171 service firms. In the next section, the specific concepts and hypotheses are discussed.

Fig. 1. Conceptual framework.

Theoretical background and hypotheses

The theoretical perspective that forms the basis for examining the interface between marketing and operations draws upon an open systems view to examining interrelationships between diverse business functions (Ruekert and Walker, 1987; Van de Ven and Ferry, 1980). In accordance with this perspective, the service firm is viewed as operating in a larger context that is complex and dynamic (Fitzsimmons and Sullivan, 1982). The focus is on understanding factors that impact the extent to which individuals in the two critical functional areas of marketing and operations depend on each other. Con- sistent with an open systems view, the characteristics of the service, its orientation, and structural aspects are argued to be important determinants. Figure 1 illustrates the broad conceptual framework underlying this study.

lying process of “interdependence”, a funda- mental concept in examining the internal functioning of firms. While several valuable frameworks have been proposed (e.g., McCann and Galbraith, 1981; Van de Ven et al., 1976), there is growing acceptance that work and information flows form the basic link between different functional units (Van de Ven and Ferry, 1980). Hence, interdependence between marketing and operations fo- cuses on the flow of materials, objects or customers (i.e., work flow) and the communi- cations about customers’ demands or the materials used in providing the service (i.e., information flow). For example, in advertis- ing agencies, marketing personnel (e.g., account executives) need to first generate de- tailed information about the project and the client and provide this as input to the operations personnel (e.g., copy writers, layout artists). On the other hand, in the case of an airline or other types of transportation the operations group (e.g., scheduling staff) need to provide information on arrivals, depar- tures and available capacity as necessary input to marketing personnel (e.g., reservation agents) in meeting customer demand.

Interdependence between marketing and oper- a tions Service characteristics

Interaction between marketing and opera- A review of the literature on classifying tions is conceptualized in terms of the under- services suggests that a wide diversity of

J. Mahajan et al. / Marketing and operations functions in sercice firms 3

characteristics are used to describe service firms (Lovelock, 1983; Wemmerliiv, 1990; Zeithaml et al., 1985). Of relevance to this research are characteristics that directly affect marketing and operations activities. In particular, heterogeneity and labor intensiveness are of significance as they influence the nature and extent of marketing personnels’ interaction with the customer and how operations personnel produce the service.

Heterogeneity suggests high variability in the service offering that could arise either due to the judgment that personnel exercise in interacting with the clients or increased customization while creating the service (Lovelock, 1983). It can be argued that in creating a heterogenous service, due to the inability to store inventories, diverse activities requiring both technical and interper- sonal skills are necessary. This suggests that close interaction between the marketing and operations functions would be required in order to ensure that customer specifications are conveyed while maintaining adequate quality standards (Collier, 1987). This argument draws prior work in organizational behavior where a positive relationship between task uncertainty and the degree of coordination of activities has been empirically verified (e.g., Van de Ven et al., 1974). In other words, it has been shown that as the job becomes more difficult and variable, as is likely to be the case when the service offering is heterogenous, the need for coordination either by using personal or group level communication increases. At the same time, a positive relationship between interdependence and coordination has been demonstrated (e.g., Cheng, 1983) suggesting that increased coordination is associated with higher dependency between different organizational members. The implication of these findings is that when the service offering is heterogenous, marketing and operations personnel are likely to depend more on one another. These arguments are summarized in Hypothesis 1.

Hypothesis 1 Heterogeneity is hypothesized to be (a) positively related to marketing functions dependence on the operations function, and similarly (b) positively related to operations functions dependence on the marketing function.

Labor intensiveness implies a relatively lower investment in plant and equipment and a considerably higher investment in worker time and effort (Schmenner, 1986). While it ensures greater personalization in interacting with customers, it also enables division of labor and tasks for efficient service delivery (Fitzsimmons and Sullivan, 1982). At the same time, due to a larger base of employees, operations personnel are more likely to reduce their dependence on marketing as they attempt to routinize and standardize the process. This argument is analogous to the well accepted observation that as the size of the work unit increases, there is a need to buffer the technical part of the firm (Thompson, 1967). On the other hand, from the perspective of the marketing personnel, labor intensity enables greater personalization and customization which necessitates working with operations personnel to identify the relative appeal of alternative service formulations (Lovelock, 1987). Hence, from the marketing function’s viewpoint the dependence on operations personnel is likely to increase. In a sense, labor intensity has a differing impact on each group of personnel (i.e., standardize/ routinize versus customize/personalize) and, as a result, has a diverse impact on whether each function depends on the other. Hypothesis 2 summa- rizes these arguments.

Hypothesis 2 Labor intensiveness is hypothesized to be (a) positively related to marketing functions dependence on the operations function, and conversely (b) negatively related to operations functions dependence on the marketing function.


Service orientation

The service orientation refers to the specific philosophy that guides strategic and tac- tical efforts of the firm. In previous research, customer orientation is defined as meeting customers’ needs through the implementa- tion of coordinated marketing activities (Zeithaml et al., 1985). The focus is on activities directed towards the customer and clients (Lovelock and Young, 1979). Although the marketing literature has emphasized use of a customer orientation, traditionally a process orientation has dominated service firms so that efficient management of operations was regarded as the most important aspect of service delivery (Lovelock et al., 1981). A process orientation involves limiting service options and achieving consistency in output by creating a production line approach to service creation and delivery (Fitzsimmons and Sullivan, 1982). In particular, customer and process orientation are viewed as two distinct concepts. The rationale for this view is two-fold. First, this conceptualization is consistent with the perspective that the two functions of marketing and operations should co-exist with each other (Weinrauch and Anderson, 1982). A continuum would suggest that as one functional area attempts to implement its strategies and tactics, the other functional area’s ability to do the same is lowered. On the other hand, conceptualizing service orientation as two distinct types enables a firm to have a high (or low) level of process and customer orientation, as opposed to trading off one against the other. Second, this view is compatible with prior work which has implicitly argued that a service firm can be characterized by both orien- tations (e.g., Bateson, 1987; Chase and Tan- sik, 1983; Fitzsimmons and Sullivan, 1982).

It is hypothesized that when service delivery is more customer based, operations employees rely on large amounts of information and work flow which marketing employees

acquire through interactions with customers. This is consistent with arguments that a “fluid” service design eases the flow of information and work within the firm (Wem- merliiv, 19901. The marketing personnel, on the other hand, are argued to reduce their dependence on operations employees in order to become more “externally” focussed. This is based on the notion that with increased professionalization which stems from greater customer orientation, there is a need for each function to have well developed standards, specialized expertise, commitment to procedures (Danet, 19811, all of which are hypothesized to reduce information and work flow between the two functional areas. These arguments are summarized in Hypothesis 3.

Hypothesis 3 A customer oriented service delivery system is hypothesized to be (a> negatively related to marketing functions dependence on the operations function, and conversely (b) positively related to operations functions dependence on the marketing function.

Traditionally, the service delivery system has focussed on a process orientation where the emphasis is on limiting service options and achieving consistency in output by creating a production line approach (Fitzsimmons and Sullivan, 1982; Lovelock et al., 1981). The focus is on using manufacturing tech- niques and systems so as to ensure smooth service delivery and due to this “internal” focus dependence of operations employees on marketing is hypothesized to be lower. This is similar to the arguments that the operations function (i.e., “the technical core”) needs to be isolated from marketing activities (i.e., high contact activities) (Chase and Tansik, 1983). At the same time, due to the enhanced technical skill of the operations personnel, marketing employees reliance on them is likely to increase particu- larly as marketing personnel can manage in-


teractions with customers so that they are in conformance with the operations system (Levitt, 1972). These arguments are summarized in Hypothesis 4.

Hypothesis 4 A process oriented service delivery system is hypothesized to be (a) positively related to marketing functions dependence on the operations function, and conversely (b) negatively related to operations functions dependence on the marketing function.

Structural dimensions

Along with the service characteristics and orientation dimensions, there are two structural aspects that need to be considered. The first structural factor that is likely to impact interdependence between functional areas is whether the service is physically “decoupled” into distinct subgroups. Typically, decoupled units perform distinct tasks and activities and pursue different goals. For instance, marketing personnel prefer flexibility in meeting the demands of customers while operations personnel prefer stability and routine relations. This is analogous to the separation of marketing activities performed by the “front office” and operations activities performed by the “back office” (Chase and Tansik, 1983). It is hypothesized that the degree to which the two functions are decoupled is likely to have an impact on the quantity of work and information flows between them. Hence, in service firms where the two functions are decoupled, structural barriers are created that lower work and information flows. Hy- pothesis 5 suggests that decoupling is likely to have an inverse affect on whether either functional area depends on the other.

Hypothesis 5 Decoupling of marketing and operations functions is hypothesized to be (a) negatively related to marketing functions dependence

on the operations function, and similarly (b) negatively related to operations functions dependence on the marketing function.

A second structural dimension that is argued to impact interdependence between marketing and operations is whether interdependencies exist in the firm as a whole (Van de Ven et al., 1976). The greater that interdependent relationships characterize overall functioning of the service firm, the more likely that interdependent relationships exist between specific functional units. This is re- flective of a team approach to service delivery which is a recommended strategy for services (Congram et al., 1987). Hence, if marketing and operations work closely with other groups in the firm it is likely this will be reflected in a high level of interaction with each other. These arguments are summarized in Hypothesis 6.

Hypothesis 6 Interdependence between marketing and operations functions and other functional areas is hypothesized to be (a) positively related to marketing functions dependence on the operations function, and similarly (b) positively related to operations functions dependence on the marketing function.

The specific interrelationships hypothesized above are schematically illustrated in Fig. 2. In the next section, details of the research design used to empirically test the hypothesized relationships are provided.

Research method

The hypotheses were empirically examined by a questionnaire mailed to key infor- mants from a cross-section of service firms. Prior to mailing the questionnaire, it was pretested and revised based on feedback re-


Fig. 2. Hypothesized relationships.

ceived from top-level executives in 20 of these firms.

A stratified random sampling procedure was used to obtain respondents. A total sample of 773 firms were selected from 17 service categories listed in the Dun and Brad- street’s Million Dollar Directory. This sampling frame was selected due to the need for large and well established firms which would ensure the existence of both marketing and operations functions. The service categories were selected based on whether: (a) the service firm operated “for profit”; and (b) both the marketing and operations functions were of relevance for the creation and delivery of the service offering, Based on’these criteria, the service categories of transportation and communication (SIC Code Nos. 42, 44-45, 47-48), financial services (SIC Code Nos. 60-621, and personal and business services (SIC Code Nos. 70, 72-73, 75-76, 78-80, 891 were selected. The number of service firms listed under each two-digit SIC Code number served as strata from which a proportion- ate random sample was drawn.

Given the specific concepts under investigation, it was critical that the respondent be knowledgeable about both marketing and operations functions and other aspects of service functioning. As a result, the questionnaire and a personalized cover letter were both mailed to top level executives (such as Presidents and CEOs) who served as infor- mants. An effort was made to encourage the executives from completing the questionnaire (as opposed to delegating it to a staff person) by personalizing all correspondence and by emphasizing the value of the study. There is compelling evidence to suggest that a top level executive completed the questionnaire as the respondents provided information which staff personnel are unlikely to have access to (e.g., sales growth, changes in expenses and costs).

The general instructions in the questionnaire contained definitions for the “marketing function”, “operations function”, and “service offering” so as to minimize ambigui- ties. Although in some services the distinc- tion between individuals that perform specific activities could be blurred, when an- swering questions relating to the marketing function respondents were asked to concen- trate on the set of individuals whose primary focus was either to generate new orders, service existing accounts, or interact with customers. Alternatively, when responding to questions relating to the operations functions respondents were asked to focus on the set of individuals that worked “behind the scenes” in creating, producing or delivering the service and who had a much lower level of customer involvement. Due to the existence of multiservice firms, respondents were instructed to focus on the primary service offering in completing the questionnaire. Self-addressed postage-paid envelopes were enclosed with the questionnaires.

In order to enhance response rates, respondents were provided with a summary report of the findings at a subsequent date.


In addition, appropriate follow-up procedures (i.e., a reminder letter and post-card) were employed. Of the total sample, 43 un- opened questionnaires were returned as the forwarding addresses were unknown or the service was no longer in existence. The data collection procedure yielded 171 completed questionnaires (a 23% response rate on the revised sample of 730). Non-response error could not be assessed directly due to the anonymity of participating firms and lack of published information for non-participating firms. However, the number of participating firms in each strata closely mirrored the theoretical proportions providing evidence of the representativeness of the sample. ’ Fur- ther, a comparison of 20 of the early responses with 20 of the late responses suggested no significant differences on the key concepts under investigation.

Characteristics of the sample

The sample consisted of large service firms employing an average of 285 employees. As expected, the operation’s function was more predominant as compared to the marketing function as the mean number of employees performing “operations” activities was 155 while a mean number of 53 employees performed “marketing” activities. About a third of the participating firms operated nationally while the remainder concentrated on local or regional markets. Overall, the firms were well established as the mean number of years in operation was reported to be 35.7 and over 70% reported an increase in profitability over the prior fiscal year.

There was evidence to suggest that the respondents were likely to be experienced and knowledgeable about the issues covered as 84% of the respondents reported their job

1 In other words, the proportion of respondents from each of the 17 service categories closely corresponded to the pro-

portion of firms in each category in the population.

title as either Presidents, Vice Presidents or CEOs with a mean of 13.3 years of experience with the company.

Operationalization of measures

The constructs presented in the framework were operationalized by following suggested approaches for measure development (Churchill, 1979). Multi-item measures were developed by generating item pools based on available measures (i.e., interdependence) and new items (i.e., decoupling, labor intensiveness, service orientation) that adequately tapped the domain of the specific construct. A five-point Likert scale assessing the degree to which the respondent agreed or disagreed with a specific statement was used with these measures. Coefficient alpha was calculated and the item-to-total correlations were used as a guide to identify potentially troublesome items. An attempt was made to minimize the method variance, inherent to paper and pen- cil measures, by reversing the direction of some of the items.

The specific items, their means and standard deviations, item-to-total correlations and reliability estimates for the measures are presented in the Appendix. The Appendix indicates that the reliability estimates range from 0.60 to 0.88 and are fairly comparable to the reliability estimates found in other marketing studies (Peter and Churchill, 1986). Further, principal factor analyses using varimax rotation confirmed the dimen- sional&y of the three sets of multi-item measures discussed below. The correlations between the measures discussed in this section are presented in Table 1.

The items tapping interdependencies were based on a modified version of Mohr’s (1971) scales which have demonstrated evidence of construct validity in prior research (e.g., Van de Ven et al., 1976). Specifically, the measure that reflects the marketing function’s dependence on the operations function


(IDEPMKT) was measured by a two-item scale reflecting the extent to which marketing employees rely on information and work from operations employees in serving the customer (a = 0.80). Similarly, the measure that reflects operations function’s dependence on marketing (ZDEPOP) was assessed by two items that measured the degree to which operations employees depend on marketing employees for information and work in producing the service (a = 0.70). Another two-item scale was used to assess the degree to which marketing or operations employees need information or work with employees in other functional areas of the firm (IDEPOTH) ((Y = 0.74). Decoupling (DE- COUPLE) was measured by a five-item scale that reflected the extent to which the activities and employees associated with the operations and marketing functions are physically and organizationally demarcated from one another ((Y = 0.88).

One potential explanation is that heterogeneity varies across different types of services so that there is little reason to expect consistency in these items across the sample of firms. For example, in brokerage firms the service offering may be very diverse so as to meet customer needs, although the service process is fairly rigid so that changes cannot be made easily. Conversely, in hotels the service offering is less diverse, however changes that cater to customer needs can be made more easily due to flexibility in the service process. The degree of labor intensiveness of the firm (DLBOR) was assessed by three items reflecting the extent to which the service offering required employees efforts as compared to reliance on machinery and equipment (a = 0.75).

Heterogeneity of the service offering (HETER) was measured by seven items that assessed whether the service offering or service process was flexible or variable. Despite the face validity of this measure, it provided the weakest evidence of reliability ((u = 0.60).

In order to capture the degree to which the service orientation was customer or process based, items that captured a range of marketing and operations tactics typically used by service firms were identified. Specifi- cally, a customer orientation (CUSTOR) was measured by eight items that related to the use of formal market planning, procedures for handling customer complaints, and gath- ering information on customer needs. The

Table 1

Correlation matrix a

Variable b Mean S.D. 1 2 3 4 5 6 7 8

1. DECOUPLE 16.47

2. IDEPMKT 7.92

3. IDEPOP 7.89

4. IDEPOTH 8.48

5. HETER 23.83

6. LABOR 9.53

7. CUSTOR 27.70

8. PROCOR 19.40

4.91 - 1.72 -0.165 * _

1.58 - 0.053 0.441 ** - 1.30 0.090 0.418 ** 0.464 ** - 3.74 - 0.128 0.411 ** 0.339 ** 0.193 * - 2.93 0.163 * 0.106 -0.109 0.046 0.135 - 5.56 0.247 ** -0.157 * 0.002 0.103 0.036 - 0.006 _

3.61 0.078 0.019 0.001 0.127 - 0.059 - 0.205 * * 0.374 * * -

a * * * p < 0.01, * * p < 0.05, * p < 0.10. b DECOUPLE: Decoupling of functions,

IDEPMKT: Interdependence-Marketing, ZDEPOP: Interdependence-Operations,

ZDEPOTH: Interdependence-Others,

METER: Heterogeneity of offering,

LABOR: Labor intensiveness, CUSTOR: Customer based service orientation,

PROCOR: Process based service orientation.

J. Mahajan et al. / Marketing and operations functions in seruice firms 9

operationalization of this measure focused on activities directed at meeting customers’ needs and enhancing client satisfaction. Given the role service quality plays in enhancing customer satisfaction (Zeithaml et al., 1991), items relating to service quality were included (a = 0.81). A process orientation (PROCOR) was assessed by a six-item scale that reflected the use of production plans, existence of operational guidelines, and use of formal work schedules. This measure was operationalized to capture the extent to which manufacturing and engineering tactics were employed to ensure smooth operations when creating the service (a = 0.65). 2

Findings and discussion

The interrelationships discussed in the hypotheses section were examined using OLS.

The regression results are summarized in Table 2. Overall, the results show encouraging support for the hypotheses as several of the predictions are significant and in the hypothesized direction (seven out of twelve) with only one of the coefficients (out of twelve) being in the opposite direction. Fur- ther, the six independent variables account for 36%, and 24% of the variation in marketing personnel dependence on operations, and operations personnels dependence on marketing.

The analyses show that heterogeneity in the service offering is positively related to dependence of marketing personnel on operations (b = 0.30, p < 0.01) and dependence of operations personnel on marketing (b = 0.30, p < 0.01). Although intuitively appeal- ing, this finding is novel as it suggests that firms with diverse offerings deliver these ser-

’ These scales could generate an upward bias as firms are less likely to acknowledge that they are not implementing marketing and operations tactics.

Table 2

0~s regression results for total sample a

Variable IDEPMKT IDEPOP

1. HETER 0.30 * * * (Yes) ’ 0.30 * * * (Yes) 2. LABOR 0.07 (Yes) -0.19 *** (Yes) 3. CUSTOR - 0.19 * * * (Yes) - 0.02 (No)

4. PROCOR 0.07 (Yes) - 0.06 (Yes) 5. DECOUPLE -0.13 ** (Yes) 0.01 (No)

6. IDEPOTH 0.43 * * * (Yes) 0.41 * * * (Yes)

R2 (adjusted) 0.36 0.24

F-Ratio 17.19 *** 9.96 ***

d.f. (6,164) (6,164)

a * * * p < 0.01, * * p < 0.05, * p < 0.10.

h The word in parentheses indicates when the sign of the

structural coefficient is in the predicted direction.

vices by ensuring that personnel responsible for producing them interact closely with those individuals that sell the service to customers. These findings support the predictions of Hypothesis 1. In addition, the findings provide support for Hypothesis 2b as they confirm that labor intensity is inversely related to dependence of operations personnel on marketing (b = -0.19, p < 0.01) but does not have a significant relationship with whether marketing personnel depend on operations (i.e., Hypothesis 2a), although the sign of the coefficient is in the predicted direction. This finding implies that in labor-intensive firms, operations personnel need less input from marketing personnel.

There is some support for Hypotheses 3 while no support is provided for Hypothesis 4. As predicted in Hypothesis 3a, a customer orientation has a negative impact on marketing functions dependence on operations (b = -0.19, p < 0.01) while it does not have a significant effect on whether operations personnel depend on marketing (i.e., Hypothesis 3b). This suggests that, in firms where specific customer-oriented tactics have been im- plemented, marketing personnel tend to rely less on operations personnel. Surprisingly, the coefficients for a process orientation, although in the predicted direction, are not significant. One potential explanation for this

10 J. Mahajan et al. / Marketing and operations functions in seruice firms

Table 3

ot.s regression results by customer segment a

Variable IDEPMKT IDEPOP

Industrial Consumer Industrial Consumer

1. HETER 0.26 *** (Yes) ’ 0.37 *** (Yes) 0.24 *** (Yes) 0.45 *** (Yes) *

2. LABOR 0.15 (Yes) **

0.03 (Yes) -0.24 *** (Yes) - 0.06 ‘(Yes)

3. CUSTOR - 0.03 (Yes) -0.35 *** (Yes) - 0.02 (No) -0.13 (No) **

4. PROCOR 0.07 (Yes) *

0.09 (Yes) -0.20 ** (Yes) 0.14 (No)

5. DECOUPLE -0.21 ** (Yes) - 0.09 (Yes) - 0.01 (Yes) 0.04 (No) 6. IDEPOTH 0.46 *** (Yes) 0.41 *** (Yes) 0.41 *** (Yes) 0.39 *** (Yes)

R’ (adjusted) 0.33 0.38 0.21 0.36 F-Ratio 7.56 *** 10.09 *** 4.41 *** 9.29 *** d.f. (6,73) (6,82) (6,73) (6,82)

iI ** * p < 0.01, ** p < 0.05, * p < 0.10. h The word in parentheses indicates when the sign of the structuraL coefficient is in the predicted direction.

’ The braces indicate that there is a significant difference between the slopes of the two regression lines. The * above the braces

indicates the significance level.

finding is that since a process orientation has traditionally dominated service firms, personnel that either produce or sell the service have accepted it as a norm for internal functioning. As a result, it has little impact on the extent to which these individuals depend on one another. ’

According to the predictions in Hypothe- sis 5a, decoupling has a negative impact on the extent to which marketing personnel depend on operations (b = - 0.13, p < 0.051, although it -has no significant effect on whether operations personnel depend on marketing (i.e., Hypothesis 5b). In other words, physical separation of the functions is associated with marketing employees relying less on the operations employees. Finally, the coefficients for the effects of interdependence with other functional areas on interde-

’ Another potential explanation is that the items did not

completely capture process orientation within the firms so that key dimensions may have been omitted from the mea-

sure (e.g., facility layout and planning).

pendence between marketing and operations are positive and support the predictions in Hypothesis 6a and 6b (b = 0.43 and 0.41 p < 0.01). This finding is insightful as it suggests that if these functional personnel have interdependent relationships with other personnel in the firm they are more likely to work interdependently with each other. This also appears to reflect increasing connected- ness between different parts of the firm and suggests the existence of “teamwork” as a culture within service firms (Congram et al., 1987).

Several additional analyses were done in order to gain additional insight. First, in order to control for the effects of number of employees and experience, the data for the total sample was re-analyzed including both these predictor variables. 4 The structural

4 Experience of the firm was operationalized as the number

of years the firm had been in operation. Size of the firm was measured as the total number of marketing and operations

personnel employed.

.I. Mahajan et al. / Marketing and operations functions in sercice firms I1

coefficients for these variables were not significant and the R* did not change, suggesting that experience and size do not signifi- cantly enhance the amount of variation ex- plained in the dependent variables.

Second, the sample was grouped into service firms that dealt primarily with industrial consumers (n = SO) and those that focused more on individual consumers (n = 89) and the regressions were recomputed. ’ The analyses for these two subgroups are summarized in Table 3. In the case of each dependent variable (i.e., IDEPMKT and IDEPOP), the slopes of the regression line for the two groups were examined for significant differences.

Overall, the results for the two groups are in conformity with the findings reported earlier. In particular, heterogeneity and overall interdependence have consistent and positive effects on the dependent variable regardless of whether the firms focus on industrial or consumer segments. However, there are several important differences. The negative relationship between labor intensity and operations personnels dependence on marketing holds for firms that deal with industrial clients but not for firms that deal with individual consumers. More importantly, process orientation has a negative relationship on operations personnels dependence on marketing for firms that deal with industrial clients. Further, the findings also indicate that the negative effect of customer orientation or decoupling on marketing personnels dependence on operations holds only for firms that deal with individual consumers as opposed to industrial clients.

The findings for the two sub-samples suggest that in the case of firms that primarily deal with industrial clients, employees that produce the service rely less on marketing

5 This analysis is based on 169 observations as two of the respondents left the specific question relating to primary customer segment blank.

personnel when service production has a high labor content or when well defined operations tactics are in place. On the other hand, for firms that deal primarily with individual consumers, employees that interact with the consumers rely less on operations personnel when the functions are physically separated or specific marketing tactics exist. This seems to imply that when service firms adopt the unique philosophy of each functional area and target specific customer segments that complement this orientation, each function tends to rely less on the other for input.

Conclusions

This research has conceptually and empirically examined the degree of interdependence between individuals that perform marketing and operations activities in service firms. The theoretical and practical significance of examining this interface is well rec- ognized and, hence, this study is an important first step. Although, some of the hypothesized relationships are intuitive, the focus of this research was to provide rigorous empirical evidence on these interrelationships. A fair summary statement of the results is that there is encouraging support for the hypothesized relationships as the results confirm a number of predictions. The contrary findings, although much less intuitive, are insightful.

In interpreting the results and in inferring implications, specific limitations of the study that provide directions for future research on conceptual and methodological grounds need mention. At the conceptual level, this study focussed on the main effects of specific antecedent conditions on whether marketing and operations personnel depend on each other. Of importance is whether their are interactions between these factors that would impact the interdependence between these functional areas. For example, prior research

12 J. Mahajan et al. / Marketing and operations functions in service fims

in organizational behavior suggests that factors that enhance uncertainty in the task environment (e.g., heterogeneity or a customer orientation) impact the relationship between work and information flow and structural characteristics such as decoupling (e.g., McCann and Galbraith, 1981). In addition, the study needs to be extended to exam- ine the impact of dependence on the perfor- mance of the firm and how these antecedent conditions moderate this relationship. It can be argued that while dependence between the functional areas enhances effectiveness when heterogeneity is high, the converse might be expected when heterogeneity in the service offering is low. Further, the study emphasized interdependence as it was viewed as important in examining the interrelationship between the two functions. However, in service firms it is likely that marketing and operations work together with other functional areas so that team interdependence could be equally relevant and of importance in future research. In addition, given the mixed findings relating to service orientation, additional work is needed that further ex- plores this aspect and how it impacts service functioning.

At the methodological level, although the sample consisted of a variety of firms repre-

senting diverse service categories, given the specific response rate caution must be exer- ’

cised in generalizing from this study. Specifi- cally, there is need for additional work that compares intra-service differences using a more comprehensive sample. Finally, in order to ensure a questionnaire of reasonable length (as it was targeted to CEOs and company Presidents), several measures consisted of a small number of items. While the measures provided adequate evidence of reliability, this limitation needs to temper interpre- tation of the results. Future work using first- line managers from operations and marketing as respondents would be desirable as longer scales could be employed without compromising response rates.

In conclusion, this study explored factors that determined the interrelationship between two critical functions using a stratified sample of service firms. Given the unique characteristics of the service offering and the manner in which it is created, theoretical and empirical insight on the interface between marketing and operations is important. Hopefully, it will stimulate further research that is interfunctional in perspective and that provides rigorous empirical insight on service functioning.

J. Mahajan et al. / Marketing and operations functions in semice firms 13

Item Mean

Interdependence-marketing (I~~P~KT) 1. When marketing employees interact with customers, they rely on prior information from

operations employees that actually produce the service 2. When interacting with existing customers, marketing employees rely on prior work

provided by operations employees that actually produce the service

Interdependence-Operations (IDEPOP) 1. To produce the service, operations employees rely on prior information from marketing

employees who deal with the customers 2. To produce the service, operations employees rely on prior work provided by marketing

employees who generate the order

Decoupling of Functions (DECOUPLE) 1. In our company, the marketing the operations functions are clearlv dem~cated

2. The individual employees that perform the marketing the operations activities are clearly

identifiable from one another 3. Groups of employees performing the marketing and operations functions are or can be

easily departmentalized in our company (i.e., separated into groups of employees performing activities related to each function)

4. In our company the various activities performed in creating and providing the service to

the customer can be clearly separated into marketing and operations activities 5. A large number of our employees perform both marketing and operations activities either

simultaneously or in sequence (Rl

Interdependence-Other (IDEPOTH)

1. Marketing or operations employees that generate orders or produce the service typically

rely on prior info~ation from other employees (i.e., other than operations or marketing)

in the company in doing their job

2. Marketing or operations employees that generate orders or produce the service rely on

prior work from other employees (i.e., other than operations or marketing employees) in

the company in doing their job

Heterogeneity of offering WETER) 1. The service offerings that we provide are fixed and standardized so that the customer

chooses between the existing alternatives (R)

2. Our service process is not rigidly defined as we produce/create a large variety of service

offerings

3. The service offering we provide can be changed easily to meet the individual requirements

of each customer

4. In producing/creating our service offering we provide a standard product as we have little

direct contact with the customer (R)

5. We only make changes in OUT service offering if the new offering can be produced/created and/or delivered without changing our current operating procedures substantially (R)

6. Changes in our service offering are made based on customer preferences as well as customer needs

7. We are constantly trying to standardize (as opposed to customize) our service offering (R)

3.95 0.98

0.90

0.67

3.97

(Y = 0.80

0.67

4.03

3.86

lY = 0.70

0.86

0.95

0.53

0.53

3.59 1.21 0.76

3.55 1.18 0.82

3.48 1.23 0.72

3.35 1.17 0.69

2.51

(Y = 0.88 1.19 0.59

4.19 0.84 0.59

4.37

U = 0.74

0.62 0.59

2.95 1.13 0.44

3.13 1.06 0.21

3.47 1.04 0.33

4.04 0.93 0.30

3.09 1.04 0.27

4.10

3.06 ty = 0.60

0.60 0.26

1.06 0.37

SD. Item-to-

Total R -

14 J. Mahajan et al. / Marketmg and operations functions in semice firms

(continued)

Item Mean S.D. Item-to-

Total R

Labor intensiveness (LABOR) 1. Our company requires a substantial investment in our employees as opposed to

investment in equipment and machinery (i.e., it is labor intensive)

2. Maintaining our equipment in working order is critical since we depend primarily on such

equipment (and not as much on employees) in providing the service (R)

3. A large part of producing/creating our service necessitates the use of equipment and

machinery as compared to the use of employees (RI

Customer based service orientation (CUSTOR) 1.

2.

3.

4.

5.

6.

7.

8.

We do not acquire information relating to our sales potential and customer needs so as to

incorporate such knowledge in our service offering (R)

We regularly do market research studies that generate information about our customers

and competitors We do little formal market planning and hence, do not have a clearly identified marketing

strategy (R) We do not have well established procedures for handling dissatisfied customers and deal

with customer complaints as and when they occur (R)

Employees that interact with customers are trained in sales and public relations skills

We do not have well developed norms and standards for assessing the quality of our

service offering (R)

We do not have well defined job descriptions (i.e., content of employee jobs) for our

marketing employees

Our company has well defined standards and procedures for assessing the quality of our

service offering

Process based service orientation (PROCOR) 1.

2.

3.

4.

5.

6.

We develop production plans (i.e., long-term plans that determine the material and goods

requirements for producing the service offering)

We develop capacity plans (i.e., long-term plans that specify equipment and employee

requirements) that help us minimize excesses or shortages in our capacity

The operational guidelines for producing our service are well specified which helps us

reduce day-to-day operational difficulties

We develop formal work schedules (i.e., schedules which specify the times at which

employee will handle each activity) on a regular basis

Our service offering is priced so as to provide us with a specific margin above all our

operating costs and expenses

Enhancing service efficiency by keeping costs as low as possible is more important for our

company than enhancing sales revenue

3.57 1.16 0.52

2.76 1.29 0.62

3.20

(Y = 0.75

1.12 0.62

3.73 0.93 0.53

3.02 1.15 0.54

3.52 1.11 0.62

3.37 1.18 0.51

3.41 0.94 0.44

3.38

3.56

3.71

(Y = 0.81

2.95

3.41

3.63

3.20

3.50

2.71 01 = 0.65

1.09

1.13

0.88

1.09

1.01

0.95

1.03

0.97

0.95

0.62

0.50

0.49

0.38

0.50

0.32

0.35

0.42

0.29

’ An (R) indicates that these items were reverse coded.

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