The current issue and full text archive of this journal is available at www.emeraldinsight.com/0144-3577.

htm

IJOPM 27,5

An operations management view of the services and goods offering mix

Henrique Luiz Correa
Crummer Graduate School of Business, Rollins College, Winter Park, Florida, USA

444

Lisa M. Ellram
Department of Management, College of Business, Colorado State University, Fort Collins, Colorado, USA

Annibal Jose Scavarda

School of Management, Royal Melbourne Institute of Technology University, Melbourne, Australia and Department of Production and Operations Management, Fundacao Getulio Vargas Business School EAESP, Sao Paulo, Brazil, and

Martha C. Cooper
The Ohio State University, Columbus, Ohio, USA and Department of Operational Sciences, The Air Force Institute of Technology, Ohio, USA
Abstract
Purpose To develop and propose a framework, termed here as the value package prism, for assessing the kinds of management processes and exibility available in providing a range of value packages (services and goods offering mix). Design/methodology/approach The literature is examined and a set of highly-visible Latin-American examples are presented to support the development of the proposed framework. Findings Provides an additional perspective to the traditional set of characteristics (intangibility, inseparability, heterogeneity, and perishability) for differentiating services and goods. The proposed framework (stockability, intensity of interaction, simultaneousness of consumption, and ease of performance assessment) and the value prism may be useful to operations managers in developing, planning, organizing, or controlling the production and delivery of services or goods. Originality/value Offers a new framework and an applied way to improve operations management by moving away from the extremes of pure services and pure goods to embrace how businesses compete and operate today, by delivering value packages. Provides an approach that facilitates operations managers understanding and ability to manage substantial changes in the value packages offered to customers. Keywords Operations and production management, Value chain, South America, Brazil Paper type Conceptual paper
International Journal of Operations & Production Management Vol. 27 No. 5, 2007 pp. 444-463 q Emerald Group Publishing Limited 0144-3577 DOI 10.1108/01443570710742357

Introduction Since, its origin, operations management has been strongly inuenced by manufacturing management practice and research (Slack et al., 2004). Operations

management effectiveness and efciency research has focused on manufacturing management (Simons and Russell, 2002). Current practice and research has tended to focus on manufacturing management knowledge, and its associated principles, metrics, systems, processes, frameworks, models, and theories. While this focus has helped the discipline mature, it also has created a bias toward manufacturing management while limiting the attention given to service management. More recently, service management has begun to receive signicant attention in operations management (Agrawal, 2002; Roth and Menor, 2003). However, the traditional characteristics used to differentiate services and goods, such as intangibility, inseparability, heterogeneity, and perishability, which are still present in the main operations management textbooks (Heizer and Render, 2006; Chase et al., 2004; Slack et al., 2004; Stevenson, 2005), are driven by the manufacturing management point of view (Vargo and Lusch, 2004a, b; Zeithaml et al., 1985). Certainly, the forces driving the new economy have intensied the discussions about services and goods. These forces include the combination of globalization and high technology, where the key outputs and productive assets are more intellectual (information and knowledge) than physical, and are fundamentally reshaping the present operations management to balance between the impacts of the old and the new economies (Hayes, 2002). Clearly, the increased economic impact of the service sector is an integral part of the new economy on a global scale. The boundaries between services and goods are blurring, as products today are often characterized by bundled services and goods (Wise and Baumgartner, 1999). Because services and goods are frequently sold together in one single value package, it is important to look at the combination of services and goods as a unit in terms of both practice and research. Thus, rather than attempt to develop a framework that focuses on the differences between services and goods, this paper will attempt to provide a useful way to understand the operations management issues associated with bundled services and goods, or value packages. The goal is to develop a framework that can provide a basis for guiding operations management decisions when a particular value package needs to be produced and delivered. The remainder of the paper is organized as follows. First, issues related to the efcacy of the four characteristics (tangibility, heterogeneity, inseparability, and perishability) of the traditional, and currently dominant, framework for distinguishing between services and goods are briey presented. Next, the blurring of the distinction between services and goods is presented, followed by the proposed framework for describing value packages to assist managers. This proposed framework has four pillars: stockability, intensity of interaction with the client, simultaneousness between production and consumption, and difculty in performance analysis. The proposed framework is applied to some Latin American examples, demonstrating how these characteristics inuence the design and ongoing processes within operations systems based on value package characteristics. The paper ends with conclusions and suggestions for future research directions. Understanding the differences between services and goods There are numerous frameworks related to service management in the literature. First, matrices are used to help managers design and select the right type of service production and delivery processes. These matrices are present in both the

An operations management view 445

IJOPM 27,5

446

manufacturing literature (Hayes and Wheelwright, 1979a, b, 1984; Hill, 2000) and the service literature (Johnston et al., 1992; Kellogg and Nie, 1995; Collier and Meyer, 1998). Fisk et al. (1993) present three-stages of the evolution of the services marketing literature. They argue that academics have reached the point where the research focus should be on integration of services and goods, and which characteristics are most critical. The molecular model, proposed by Shostack (1982), suggests that services (intangible) and goods (tangible) elements compose each product (market entity), which can be placed along a continuum based on the relative proportion of its elements. Likewise, the content continuum framework (Polito and Watson, 2004) combines, but does not integrate, both services and goods. There is still a potential conict between operations and marketing in practice. Operations prefers stable production of a narrower product line to encourage operational efciency, while marketing frequently focuses on satisfying customers quickly, at any cost (Malhotra and Sharma, 2002). While Cook et al. (1999) note that the characteristics associated with the process and product are operations and marketing-oriented, respectively, they suggest that research should consider operations and marketing-oriented aspects of services together. In general, there is still a lack of investigation of operations issues that are important to service organizations and the creation and delivery of services (Wright and Mechling, 2002). The distinction between services and goods was useful in early services research in identifying the unique characteristics of services, and establishing services as an area of study separate from manufacturing. Services were differentiated from goods on the basis of four characteristics: tangibility, heterogeneity, inseparability, and perishability. Much of the literature has focused on these four characteristics to distinguish services from goods (Fisk et al., 1993; Shostack, 1977; Zeithaml et al., 1985). However, as the study of services has evolved, treating these characteristics of services as denitive creates an incomplete picture, with limited generalizability (Edgett and Parkinson, 1993; Lovelock and Gummesson, 2004; Vargo and Lusch, 2004a, b; Winsor et al., 2004). A robust dichotomy between services and manufacturing rms does not exist (Berry and Parasuraman, 1991). Further, the oversimplication that services are merely a subset of goods led to the treatment of services in the same manner as goods (Cook et al., 1999). This paper explores the traditional framework and presents a new set of characteristics that might be meaningful to operations managers and others: the value package prism, its pillars and application. A critical analysis of the four traditional distinctions between services and goods is provided next. Building upon the relevant aspects of these characteristics, the goal is to describe a value package of combined services and goods from the operations management point of view. This brings together the characteristics that usefully delineate combined services and goods, rather than to perpetuate the focus on differentiation, into a value package to provide customers with a total solution. Traditional characteristics There are four traditional characteristics distinguishing services from goods. We quote some of the most popular operations management textbooks in their most recent editions to illustrate these characteristics. The authors may not give all the characteristics the same names but they conceptually agree in considering these four characteristics as differentiators between services and goods:

(1) intangibility: a service is something that can be dropped on your foot without hurting you (Chase et al., 2006); (2) heterogeneity: [a service] produced for you is not exactly like anyone elses (Heizer and Render, 2006); (3) inseparability: a [service] is consumed as it is produced (Heizer and Render, 2006), so in services, production is inseparable from consumption; and (4) perishability: services cannot be inventoried (Stevenson, 2005). We argue that these four characteristics are not absolute differentiators between goods and services. They may be present in some goods. The characteristic of intangibility is used to illustrate this point. Intangibility, lack of a physical form, is a quality commonly associated with services. Service intangibility is noted in the literature as having a negative impact on the clients ability to assess service quality, establish quality standards, and even understand and communicate the needs or requirements of the service user when specifying the services to be rendered (Johns, 1999; Lovelock and Gummesson, 2004). However, intangibility is also present in many goods, such as cars, drugs, vaccines, safety equipment, and component parts, which are also assessed by non-objective criteria, such as perceived quality and image (Garvin, 1988). Following this reasoning, this paper suggests that intangibility is not a clear differentiating factor between services and goods regarding management decisions, such as the design and management of quality systems. The same holds true of heterogeneity, inseparability and perishability. The point is not to discredit these traditional characteristics, but to demonstrate that there is a blurring of services and goods, and that a new framework is needed for this new environment (Winsor et al., 2004; Grove et al., 2003; Morris and Johnston, 1987). In the marketing literature, Vargo and Lusch (2004b, p. 235) noted that it would be much more valuable to . . . provide a foundation for a more unied understanding of exchange in general, without reference to the articial distinction between goods and services, which may imply overly simplistic and inappropriate strategies. Customers do not buy services or goods: they buy offerings which render services to create value (Gummesson, 1995, referenced in Vargo and Lusch (2004b, p. 328)). Thus, this research focuses on the value package. Before presenting the proposed approach to understanding the services-goods value packages, it is useful to better understand the shifting competitive landscape in terms of how operations management and industrial buyers view value packages. The blurring of the distinction between services and goods A competitive strategy clearly emerging since the mid 1990s is that of the total solution provider. Rather than just provide goods that the company then has to manage, or services, which the company has to match with goods to provide value, companies do both within a single product offering (Reis and Pena, 2000). This has been most prevalent in companies that provide goods such as International Business Machines Corp. (IBM), Hewlett-Packard Co. (HP), General Electric Co. (GE), Johnson & Johnson, Allegiance Corp., Becton Dickinson and Co. (Brown, 2000), General Motors (GM), and ExxonMobil (Bolton et al., 2004, p. 24), the Mexican cement manufacturer Cemex (2006), the Brazilian and largest South American manufacturer of fertilizers Bunge (2006).

An operations management view 447

IJOPM 27,5

448

There are several reasons for this movement towards combining goods and services. Many goods, including capital, are rapidly becoming commoditized. Adding services to support the goods may provide a way to differentiate goods offerings to prevent or delay the margin erosion characteristic of commoditization. Examples of other goods that have experienced commoditization and have been transformed into value packages range from relatively simple products such as janitorial supplies (rms such as Waxie (2006) provide their US customers with analysis such as how many janitorial personnel are necessary for the facility, the expected supply usage, and the recommended inventory levels, so the manager can better gauge the organizations performance) to more engineered products such as MP3 players (Apple differentiated the iPod product line from the competition by transforming their offering into a value package with the creation of iTunes, a content provider). Adding services to goods has also been used extensively by local manufacturers and global rms Latin American operations as a defensive strategy against imported goods. A number of Brazilian-based manufacturing operations face the challenge of protecting their presence in local markets against imports that became very price-competitive due to a strong Real (the Brazilian currency). The locally-provided value packages are much more difcult for overseas suppliers to match than providing goods alone. Value packages provide differentiation. One example is the local operation of Rhone-Poulenc (Rhodia, 2006) that produces polymers for industrial applications. To protect against competitor operations from overseas, the company offers their customers pre-sale advice and on-site after-sales support related to the application of their products. Another example is the local operation of Saint-Gobain Latin America (Exame, 2003). They manufacture industrial abrasives to serve local markets, coupled with specialized on-site technical advice to help customers specify and use the products correctly. This may even lead to lower revenues in cases where the customer was previously over-specifying. However, Saint-Gobain believes that this less tradable (Kon, 1999) value package is difcult for competitors with no local presence to match. Similarly, by expanding into a consultative role with customers, Saint-Gobain Latin America can ensure that customers select the right hardware and use it properly. Owing to the ability of service providers to customize offerings, customize support, and create personal relationships, it is often more difcult for organizations to commoditize or directly compare services than to compare goods. Thus, the greater and more varied the services component of the services-goods bundle, the less commoditized the goods will become. More than that, such services can act as loyalty agents that contribute to increased future business because the business ow will depend on the relationship ow and, therefore, on keeping or increasing loyalty of customers. Loyalty in competitive markets only occurs with clients who are very satised with the value package offered (Heskett et al., 1997), and leads to reduced supplier switching (Johnston and Clark, 2001). The rst mover towards a mixed services and goods value package in any given industry would certainly have an advantage, but the services packages are fairly easy to emulate, thus not providing sustainable competitive advantage. What such services packages do provide, however, is more stickiness for the customer. It is more difcult, costly, and time consuming to switch from full service providers than providers of goods alone because of the service embeddedness and customization of network conguration. Thus, services are really what provides the value added

in this market, rather than the goods, or hardware, which are available from several manufacturers. A number of Latin American-based operations are following this route to help protect local market share. They sometimes underestimate the operations challenge that is required to transform a good to a value package, and effectively manage the service component. Operations processes, resource characteristics and structure may have to be changed. The framework proposed in this paper aims to help companies better understand the nature and the magnitude of the operations changes required when particular aspects of the value package are altered. From a customer satisfaction standpoint, providing services to support goods helps ensure that the goods are used properly, thereby increasing customer satisfaction and creating greater loyalty. The next section proposes what the authors perceive as a more useful way to build on the strengths of the traditional services versus goods model, and adapt it to better manage and understand services-goods value packages. A new set of characteristics From an operations perspective, the characteristics of tangibility, heterogeneity, separability, and perishability do not always differentiate between services and goods, and may contribute to confusion over the nature of value packages. However, the concepts underlying these factors provide insight into both the strategic formulation and decision making related to production and delivery of value packages (Correa and Correa, 2006). Based on the previous discussion, it appears that the issues that affect operations management are related to the four following characteristics: degree of stockability; degree of intensity of interaction with the client; degree of simultaneousness between production and consumption; and degree of difculty in performance analysis. Degree of stockability The degree of stockability characteristic refers to the ability to inventory items needed to deliver the service before demand occurs, as well as the ability to inventory the service to be delivered. For example, a barber can have the razor, shampoo, etc. available for use in stock, but the barber cannot stock haircuts. The haircuts occur simultaneously with the demand, when someone walks into the shop. This concept underlies the characteristic of simultaneity in the literature. However, this characteristic is not merely dichotomic, as simultaneity is; rather, it depends on the ease of adopting the strategy of demand leveling for the production and delivery of the value package, regardless of the proportion of services and goods. An espresso coffee, for instance, is a physical product and still cannot be stocked, in practical terms, for more than some seconds. Production and consumption are not strictly simultaneous, but the time span between one and the other is very short, making it virtually impossible for a coffee shop to stock espressos in anticipation of demand. A fresh sandwich has a higher degree of stockability than an espresso, because it can be consumed a couple of hours after production that is why some shops choose to build anticipation stocks of them to face demand peak hours during the day. The point here is that a product that is not simultaneously produced and consumed does not guarantee that it is possible to build anticipation stocks. How far in advance anticipation stocks can be built depends on the items degree of stockability as a

An operations management view 449

IJOPM 27,5

function of the maximum time span between possible build up of anticipation stocks and the actual demand. While contrary to the notion of just-in-time, the option of stocking items can allow more efcient use of capacity, better ability to adapt to changing demand to meet seasonal uctuation, and more exibility in scheduling. The degree of intensity of interaction Human participation, including interactions between clients and service providers, underlie the concept of heterogeneity in the literature. Heterogeneity results from people performing services differently. Although the literature associates services with the characteristic of heterogeneity, some services can be very homogeneous. Non-labor-intensive services, such as internet shopping, tend to be very consistent. On the other hand, not all goods are homogeneous. In goods requiring customized craftsmanship, consistency is difcult to achieve. One pair of high class leather shoes made to order by an Italian artisan is never exactly the same as the next pair that he makes and it is not supposed to be. Thus, from an operations viewpoint, the dichotomy between goods and services is also not absolute when considering the characteristic of heterogeneity. What matters for operations is neither heterogeneity, nor whether the process renders a service or produces a good, but the degree of intensity of interaction between the customer and the process. In general, greater customization requires a greater degree of interaction to acquire information about the specic needs. In such cases, the operations manager requires operations resources, i.e. people that can: . listen; . interpret; and . respond appropriately to the customer. These resource characteristics are necessary for, e.g. career counseling (a highly customized service operation) and for haute couture (the creation of exclusive custom-tted fashions, a highly customized manufacturing operation), but not as much for less customized operations such as public transport (service) and cement making (manufacturing). The former two require different, and probably greater, resource exibility characteristics and different processes (Brasil and Slongo, 2004) than the latter two. Additionally, the higher the degree of intensity of the interaction of the people and other resources, the more difcult it will be to control and manage the production and delivery of the value package. Supplier and client exchanges can be analyzed by intensity of the information ows involved. We propose that intensity can be measured by the complexity (richness, amount, and detail) of the information exchanged and by the need to customize the value packages production and delivery. Highly customized packages require a high degree of intensity in the relationship. Thus, this characteristic has implications for the right type of production and delivery processes and resources, with the more intense interaction requiring more exibility in all of these aspects. Degree of simultaneousness between production and consumption This characteristic is related to both the concepts of tangibility and inseparability as presented in the literature. While high simultaneity generally equates to low stockability, low stockability does not necessarily equate to high simultaneity.

450

For example, a copier repairperson cannot build up stocks of repairs copiers must break before they can be repaired production and consumption are simultaneous. So, the operations manager has to deal with the need to provide resource availability whenever demand happens (degree of stockability is zero). The degree of stockability of a product directly impacts the inventory and capacity management options that can be used (e.g. to what degree anticipation stocks can be built up to better level production), while the degree of simultaneousness directly impacts the quality management options that can be used (e.g. process and/or nished product quality control). Although copier repairs are not a stockable product, when a technician nishes xing the equipment, it may be hours, or even days later, before the customer will actually consume the result of that process, implying low simultaneity. During the time between completion of the repair and use of the copier, nished goods quality control can be performed. This is not the case with a call center, for instance, where sorting good from bad operator answers cannot be performed before the answers reach the customers ears. In a call center, the degree of stockability is zero (implying impossibility of the use of anticipation stocks) and the degree of simultaneousness is very high (implying impossibility of the use of nished product quality control only process control can be used). In a copier repair operation, the degree of stockability is also zero (implying impossibility of anticipation stocks), but the degree of simultaneousness is lower (implying that both process and nished product quality control can be used). On the other hand, for some processes that involve the production of physical goods, nished product control is either infeasible or inconvenient, because the production and consumption of the product have a high degree of simultaneity, thus requiring that the managers favor process control. For instance, a fast food chain does not have the opportunity to run extensive lab tests to detect possible contamination on each of the millions of nished sandwiches sold to customers everyday. Because the production and the consumption of the nished good have a high degree of simultaneity (although not strictly simultaneous) the nished product quality control option cannot be fully utilized so the chain has to rely primarily on process control. However, because of a much lower degree of simultaneity, a manufacturer of canned vegetables has more opportunity for nished product quality control. Thus, the type of product or process control adopted depends on the characteristics of the production processes and on the degree of simultaneousness between the production and consumption of the product, and not whether the value packages are more oriented towards services or goods. Degree of ease in performance assessment The ability of the customer to analyze performance is a characteristic that underlies the concept of tangibility in the literature. Historically, many customer contact services, such as call center operations, were viewed as intangible and thus difcult to assess. However, this has shifted as call centers have become more prevalent and frequently outsourced. Currently, they are measured, for example, by industrial customers of contract call centers, by many methods. The caller can be transferred to a survey upon call completion and be asked whether his or her problem was resolved. One can also objectively measure the amount of time on a call, the amount of time idle, and the time a customer waits in the queue. Service measurement is possible. Thus, it is not the

An operations management view 451

IJOPM 27,5

452

tangibility or intangibility of the offering that drives the measurement issues for operations managers. It is the degree of ease or difculty to measure. Value packages with a low degree of difculty to assess require formulation of different management strategies than those that are difcult to assess, regardless of whether they are tangible or intangible products. One example of a service that is difcult for the customer to assess is taxation consultancy. In some countries, such as Brazil and several other Latin American countries, the laws surrounding taxation are so intricate that the quality of consulting provided by a rm is very difcult for a manager to assess. The consulting rms may want to provide data to help the customer assess the quality of the value package provided. Firms selling a value package that is easier to assess by the customer (such as industrial catering, for instance), will place much less emphasis on helping customers to judge its performance. The next section provides insights into how the characteristics proposed in this paper affect the design and management of operations systems. A guideline for designing operations systems based on value package characteristics From an operations management standpoint, the four proposed pillars of the value package prism (stockability, intensity of interaction, simultaneousness of consumption, and difculty to assess) can be used to describe the value package offered to customers. While these characteristics were adapted from the traditional characteristics (Figure 1), they serve a different purpose. They are used as a way to help operations managers design and manage production and delivery processes rather than as a way to differentiate services and goods. One way to denote a value package based on the four proposed value package characteristics is a radar representation, as in Figure 2(a). The radar representation, also called a spider web chart, is an analytical tool often associated with benchmarking, which allows for simultaneous presentation of three or more performance measures (Mosley and Mayer, 1999). The radar chart is adapted here to act as a tool to describe the level of the four proposed value package characteristics in a value package prism. Each of the four segments of the prism is independent of the others and represents a continuum varying from low (in the center at the origin of the segment) to high
Traditional Proposed Degree of Stockability Intangibility Heterogeneity Inseparability Degree of Intensity of Interaction Degree of Simultaneousness between Production and Consumption Degree of Ease in Performance Assessment

Figure 1. The four traditional and the four proposed value package characteristics

Perishability

Simultaneousness (of consumption) high Intensity of interaction (process customer) high Difficulty to assess (performance) high

An operations management view 453

low

high Nonstockability (of product) (a) Value package "prism" Simultaneousness high Intensity of interaction high Intensity of interaction high Difficulty to assess high Simultaneousness high Difficulty to assess high

high Non-stockability (b) Praxair (before)

high Nonstockability (c) Praxair (after)

Figure 2. Radar representation of two value package prisms

(towards the arrow at the end of the segment). Thus, each intermediate point is meaningful, corresponding to the degree of simultaneousness (of consumption), intensity of interaction (between the process and the customer), non-stockability (of the product or service), and difculty to assess (performance). Figure 2(b) and (c) show an example of the application of the value package prism when there is a change in the value package. Figure 2(b) graphically shows the previous value package of White Martins (2006), the Brazilian subsidiary of Praxair, a company who originally manufactured air gases (e.g. oxygen, nitrogen, and argon) and supplied customers with cylinders of gas. Because the value package offered was stockable (low degree of non-stockability), production and delivery could occur independently of when the gases were consumed by customers (low degree of simultaneousness), allowing for activities such as end product quality control for these standard, commodity-like gases (low intensity of customer interaction). This did not require a great deal of exibility in the process, and standard tests and procedures applied to assessing the product (easy to assess). Mapping the levels of these four characteristics on to the radar chart in Figure 2(b) results in a relatively small area dened by the four points near the center.

IJOPM 27,5

454

To address the commoditization of its products, White Martins began supplying customers with an altered value package, including the service of on-site oxy-cutting of metal sheets. Thus, it was selling meters of cut metal sheets instead of bottled gas for use in metal cutting. This signicantly changed the levels of the four characteristics of the value package. The level of non-stockability increased because Praxair employees perform metal cutting at the customer premises whenever the customer process requires. By co-locating inside the customer premises, the level of intensity of the customer interaction increased substantially requiring higher levels of interpersonal skills and higher process exibility to conform to the particular specications of the individual customers. The degree of simultaneousness also increased because now the customers will consume the metal cutting result almost immediately many of its customers, for instance, are in the automotive business and work just-in-time providing less opportunity for Praxiars end product quality control than when it was were providing bottled gas. And nally, assessing the result of a process such as metal oxy-cutting as part of a dynamic environment, such as the customer manufacturing plant, may be more difcult than merely assessing bottled gas it may involve complex aspects like assessing the relationship, cooperation, and responsiveness. The result is shown in Figure 2(c). The points correspond to the degrees the four characteristics that cover a much larger area in the radar diagram than in Figure 2(b). This greatly complicated the operations processes for White Martins, but contributed to product differentiation, working as a defensive strategy in a highly competitive market. It is much more difcult for a non-local competitor to match the new value package than for the competition to match bottled gas, a good that is easy to ship in. This is not to suggest that a greater or lesser degree of any given characteristic is better or worse. It is simply different, supportive of a different customer strategy and correspondingly creates different production and delivery issues for operations management. Discussion Using the radar diagram to assess proposed value packages can assist operations managers in anticipating changes and designing the right processes to produce and deliver the altered value packages. The potential usefulness of the four proposed value package characteristics is presented in more detail in the following paragraphs. Increased non-stockability reduces the operations managers options. When the product is less stockable, production leveling becomes less available. The operations manager must accept the inability to meet surges in demand, and lose sales, or have extra or exible capacity in place to meet potential needs. Increased degree of intensity of interaction between people (clients and service providers like employees) and other resources also requires that several aspects of the production and delivery processes are adjusted. Because the employee directly represents the company, he or she must have good interpersonal skills and present a positive image to the customer. In addition, high interaction employees will have to be adaptable, and master the arts of listening, comprehending and adequately responding to customers information and requirements. Thus, proper employee training in these activities is crucial. Whether producing a value package more closely resembling a service or a good, these employees need training to consistently perform within specications, and to adequately self-inspect their work to understand whether

it is acceptable before it is released to the customer, who may or may not be present for the production and delivery processes. Increasing the degree of simultaneousness limits the operations managers options in terms of quality control approaches. When simultaneousness is low, the manager can use product control, process control, and employees self-control (normally a combination of them). The more simultaneous the production and consumption are, the less the manager can use product control (inspection). Increased degree of difculty ton assess performance creates the need for more sophisticated performance measurement approaches that can encompass assessing softer aspects such as relationship, trust, responsiveness, and cooperation. A conscious decision must be made regarding what needs to be measured, and how to develop measurements that are meaningful and cost benecial. There may also be a need to create mechanisms that help customers assess the performance they perceive in ways that are meaningful to the customer. It seems that the complexity of the operations managers task increases as the area dened by the value package in the prism increases. In some instances, the operations manager loses management options, such as end product quality inspection. In other instances, the operations manager must deal with more complexity in processes, such as customer interaction, performance assessment and exibility. In an attempt to help operations managers to better understand what sort of process changes are required as the value package is altered, Figure 3 shows the value package prism with some process aspects that correspond to regions of the four continua. This could provide a starting point for operations managers designing new processes, or dealing with changes in an existing value package offering. Examples Figure 4 shows how the radar chart can be used to map the value package prism for a number of value packages. For example, for an inbound call center for a software help desk, the level of simultaneousness is high and stockability is low: capacity must be available when the client calls, or he or she will hang up. Likewise, customer service representatives must be well trained in effectively dealing with clients issues, because there is little room to check and correct quality of the nished product (response to customer) before that response is delivered. To deal with the capacity issue, a business might add personnel during peak times, or train personnel in other areas to answer the phones during peak times. In addition, to improve demand management, there might be an automated answering system that provides standard information such as the operating hours, mailing address, and process for making a change, or refers customers to a web site. This can channel the remaining unique interactions to customer service representatives. Dealing with the customer one-on-one requires a high level of exibility, so again, training and interpersonal skills are important. Finally, there is some complexity in performance assessment of the call center. While objective measures like call volume, call times, and wait times can be readily automated, there is also a concern with service quality. Was the customer treated in a respectful manner, and was the issue resolved? Gathering such data usually involves asking the customer directly. In addition, differing levels of customer expectations must be gauged to get a fair assessment.

An operations management view 455

IJOPM 27,5

Simultaneousness (of consumption) high

456

Restricted set of quality control options

Intensity of interaction (process - customer) high

Full set of quality control options Lower level of soft requirements & flexibility needed High level of soft requirements & flexibility needed Simpler performance assessment systems

Sophisticated performance assessment systems

Difficulty to assess (performance) high

low

Full set of capacity mangement options

Restricted set of capacity management options

Figure 3. Process options related to different value packages

high Non-stockability (of product)

The proposed framework has broad potential application. It moves operations managers away from the mindset of the services-goods dichotomy, which, while interesting conceptually, is less useful in practice and research in a value package world. The next section offers a summary of the paper, followed by suggestions for future research directions. Conclusions This paper has provided an additional perspective to the traditional framework for differentiating services and goods. First, the authors suggested that intangibility, inseparability, heterogeneity, and perishability do not consistently distinguish between services and goods. Then, the authors indicated that because this set of characteristics does not appear to address the way rms operate today, it may not be as useful to operations managers in terms of developing, planning, organizing, or controlling the production and delivery of services or goods. A new approach is needed. This approach must embrace the blurring of the lines between services and goods. Currently, an increasing number of services and goods are bundled as value packages.

Simultaneous high Intense interaction high Intense interaction high Difficult to assess high

Simultaneous high Intense interaction high Difficult to assess high

Simultaneous high Difficult to assess high

An operations management view 457

high Non-stockable Aircraft parts manufacturer Simultaneous high Intense interaction high Intense interaction high Difficult to assess high

high Non-stockable High end hotel Simultaneous high Intense interaction high Difficult to assess high

high Non-stockable Commodity steel Simultaneous high Difficult to assess high

high Non-stockable Call center

high Non-stockable Consulting firm

high Non-stockable Specialized surgery

Figure 4. Illustrations of the value package prism for different value packages

Combining goods with services allows differentiation and diminishes commoditization, with the associated loss of prot margins. As demonstrated, value packages can also serve as part of a defensive strategy against overseas competitors who nd it more difcult to establish a local base to provide on-site services than to merely provide their products. Useful frameworks should have a basis in practical reality. The suggested framework offers an applied way to improve operations management by moving away from the extremes of pure services and pure goods to embrace how businesses compete and operate today, by delivering value packages. This paper suggests that stockability, intensity of interaction, simultaneousness of consumption, and difculty to assess performance are more useful characteristics for the operations manager in understanding value packages. These specic characteristics were selected to bring services and goods together, in contrast to the traditional approach of focusing on the differences. The suggested characteristics can also be applied to items traditionally classied as pure services or pure goods. By simultaneously evaluating these suggested characteristics and mapping them on a radar chart, the operations manager can develop a prism prole for any given value package or portion of a value package offering. Using this prole, the operations manager can assess his or her most effective options in terms of inventory management, quality management, exibility required, interpersonal skills required of the workforce, and related issues. This can help with planning of operations to better understand requirements before a change is implemented, allowing for anticipation of changes in the cost and process structure of the operations. It can help with the

IJOPM 27,5

458

execution of change by identifying the options and limitations associated with each value package characteristic. This proposed approach can also help to identify and provide insights into day-to-day management issues, such as the skill sets required of employees. The proposed framework is applied to some Latin American examples, particularly Brazilian rms. The recent decline of trade barriers and locally strong currency have exposed Brazilian-based operations to more cost effective competitors from overseas. The defensive strategy of adding service content to goods offered to local markets has been adopted by a number Brazilian-based operations. The framework presented here provides an approach that facilitates operations managers understanding and ability to manage substantial changes in the value packages offered to customers. The contribution of this proposed framework extends beyond Latin American rms to businesses across the globe. While this proposed framework is broadly applicable, it has limitations. For example, some issues that affect operations decision making, such as technology and the environment, have not been included here because they have not historically been viewed as differentiators between services and goods. The items focused on here were specically selected to demonstrate issues associated with the increasingly common blending of services and goods, rather than to focus on their perceived differences. If an operations manager wanted to use this proposed framework as a complete decision support framework, or a researcher wanted to test this proposed framework, the radar chart approach offered here can easily be adapted to take into account other variables that affect operations decision making, some of which may be company or situationally specic. Future research directions When a new framework is introduced, several future research directions should be considered. The sufciency of the framework to cover the domain of the process under investigation is important. If the framework is to supplant the current variables, then the two frameworks should be further compared. The usefulness of the application of a managerial framework should be assessed. The following research questions are offered from these perspectives. Sufciency of the four proposed value package characteristics The four proposed value package characteristics (stockability, intensity of interaction, simultaneousness of consumption, and difculty to assess performance) were indirectly derived from the salient features of the four traditional characteristics (intangibility, inseparability, heterogeneity, and perishability). However, there might be other characteristics that are worth including in the value package prism in terms of adding to its descriptive and analytical potential. For instance: is customer participation in the value creation a fth value package characteristic or is it included in intensity of interaction and/or in simultaneousness? The more activities an operation delegates to the customer, such as online product conguration and order placement, the more attention should be given to activities such as customer training and mistake proof mechanisms. Does this justify the denition of a fth characteristic? Some authors appear to think so. Customer participation has long been considered as a

relevant aspect of the services and goods offering by the Nordic School tradition of service marketing and management research as can be noticed in the following quote:
The consumer inuence on the service offering [. . .] is twofold. The consumer himself takes part in the production process and, consequently, has an impact on what he gets in return. On the other hand, the other consumers simultaneously buying or consuming a service also inuence the service offering (Gronroos, 1982, pp. 38-9).

An operations management view 459

The authors posit that the new set of characteristics proposed in this paper is more useful than the traditional and current services-goods dichotomy from the operations management point of view. However, further research is needed in order to empirically assess whether the proposed framework actually has greater managerial usefulness than the current variable set. Value package prism construction One issue that is evident when a manager starts using the value package prism to describe value packages is the different polygon shapes which form as a result. One could hypothesize that there might be a proportional relationship (albeit not linear) between the area of the polygon formed and the managerial complexity of the operations that will produce and deliver it. Are there managerial implications associated with the shape of the value package prisms gure? Second, do the four proposed value package characteristics form an orthogonal system; in other words, are the characteristics independent of each other or necessarily correlated in someway? If they are correlated, what is the interaction (e.g. the presence of tradeoffs) among the characteristics and what are the managerial implications of the possible correlations? In matrices relating all pairs of characteristics possible, are all quadrants viable/possible? A third research opportunity to develop the value package prism as a useful framework is to develop testable scales for the four proposed value package characteristics so that different intermediate points or stages could be better dened as they vary from low to high. For example, what condition actually characterizes a high degree of simultaneousness? It appears to the authors that this analysis should include at least product shelf life and demand cycles. Further conceptual development and empirical testing is needed related to each of the proposed characteristics. Relationship of value package conguration to the proposed framework characteristics Another topic that is potentially fruitful in terms of future research and practice is to further explore the relationship between value packages and production and delivery process/operations characteristics. The authors outlined a preliminary framework (Figure 3) in an attempt to show some relationship between the value packages described in the value package prism and operations characteristics. Does this provide a model for improved outcomes in practice? Limitations of the proposed framework One important aspect that should be further researched relates to the value package prisms limitations. What are the connes within which it is applicable? Although the authors used some illustrative examples of aggregate packages, it appears to the authors that the shapes of the value package prism will likely be different when

IJOPM 27,5

460

different activities within the organization are analyzed. In the example of a specialized surgery in Figure 4, the shape relates to the activities performed by the physicians team inside the theatre, but, if one thinks about the back-ofce activities of the hospital which are also crucial for a good value package to be delivered (such as the theatre cleaning between surgeries), the shape would be very different. The value package prism is presented as one possible seed for the development of a more integrated theory of service and manufacturing management. It offers an operations management view of the services and goods offering mix. With further research, this proposed framework can be developed to provide a more appropriate way for operations managers to plan and manage their own activities and interfaces with other functions.
References Agrawal, V.K. (2002), Constituencies of journals in production and operations management: implications on reach and quality, Production and Operations Management, Vol. 11 No. 2, pp. 101-8. Berry, L.L. and Parasuraman, A. (1991), Marketing Services: Competing Through Quality, The Free Press, New York, NY. Bolton, R.N., Day, G.S., Deighton, J., Narayandas, D., Gummesson, E., Hunt, S.D., Prahalad, C.K., Rust, R.T. and Shugan, S.M. (2004), Invited commentaries on Evolving to a new dominant logic for marketing, Journal of Marketing, Vol. 68 No. 1, pp. 18-27. Brasil, V.S. and Slongo, L.A. (2004), Tipo de Interacao de Servico: Impactos sobre o Processo de Escolha do Sistema de Servico, Revista Eletronica de Administracao REAd, Vol. 10 No. 3, Porto Alegre, Brazil. Brown, S.W. (2000), The move to solutions providers, Marketing Management, Vol. 9 No. 1, pp. 10-11. Bunge (2006), available at: www.bunge.com/products-services/fertilizer.html (accessed February 4). Cemex (2006), available at: www.cemex.com/ps/ps_cs.asp (accessed February 4). Chase, R., Jacobs, R. and Aquilano, N. (2004), Operations Management for Competitive Advantage, 10th ed., Irwin/McGraw-Hill, Boston, MA. Chase, R., Jacobs, R. and Aquilano, N. (2006), Operations Management for Competitive Advantage, 11th ed., Irwin/McGraw-Hill, New York, NY. Collier, D.A. and Meyer, S.M. (1998), A service positioning matrix, International Journal of Operations & Production Management, Vol. 18 Nos 11/12, pp. 1223-44. Cook, D.P., Goh, C.H. and Chung, C.H. (1999), Service typologies: a state of the art survey, Production and Operations Management, Vol. 8 No. 3, pp. 318-38. Correa, H.L. and Correa, C.A. (2006), A critical analysis of the product-service dichotomy in operations management, Latin America Business Review, Vol. 6 No. 4. Edgett, S. and Parkinson, S. (1993), Marketing for service industries a review, The Service Industries Journal, Vol. 13 No. 3, pp. 19-39. Exame (2003), O Negocio e vender menos, Editora Abril, Sao Paulo, Agosto 29. Fisk, R.P., Brown, S.W. and Bitner, M.J. (1993), Tracking the evolution of the services marketing literature, Journal of Retailing, Vol. 69 No. 1, pp. 61-103. Garvin, D. (1988), Managing Quality, The Free Press, New York, NY.

Gronroos, C. (1982), An applied service marketing theory, European Journal of Marketing, Vol. 16 No. 7, pp. 30-41. Grove, S.J., Fisk, R.P. and John, J. (2003), The future of services marketing: forecasts from ten services experts, Journal of Services Marketing, Vol. 17 No. 2, pp. 107-21. Gummesson, E. (1995), Relationship marketing; its role in the service economy, in Vargo, S.L. and Lusch, R.F. (Eds), Understanding Services Management, Wiley, New York, NY, pp. 224-68, referenced in Vargo, S.L. and Lusch, R.F. (2004), The four service marketing myths: remnants of a goods-based, manufacturing model, Journal of Service Research, Vol. 6 No. 4, pp. 324-35. Hayes, R.H. (2002), Challenges posed to operations management by the new economy, Production and Operations Management, Vol. 11 No. 1, pp. 21-32. Hayes, R.H. and Wheelwright, S.G. (1979a), Link manufacturing process and product life cycles, Harvard Business Review, Vol. 57 No. 1, pp. 133-40. Hayes, R.H. and Wheelwright, S.G. (1979b), The dynamics of process-product life cycles, Harvard Business Review, Vol. 57 No. 2, pp. 127-36. Hayes, R.H. and Wheelwright, S.G. (1984), Restoring Our Competitive Edge, Wiley, New York, NY. Heizer, J. and Render, B. (2006), Operations Management, 8th ed., Pearson Prentice-Hall, Upper Saddle River, NJ. Heskett, J.L., Sasser, W.E. and Schlesinger, L.A. (1997), The Service Prot Chain, The Free Press, New York, NY. Hill, T. (2000), Manufacturing Strategy: Text and Cases, 3rd ed., Irwin/Mc-Graw-Hill, Boston, MA. Johns, N. (1999), What is this thing called service?, European Journal of Marketing, Vol. 33 Nos 9/10, pp. 958-73. Johnston, R. and Clark, G. (2001), Service Operations Management, Prentice-Hall, Harlow. Johnston, R., Silvestro, R., Fitzgerald, L., Brignall, T.J. and Voss, C.A. (1992), Towards a classication of service processes, International Journal of Service Industry Management, Vol. 3 No. 3, pp. 62-75. Kellogg, D.L. and Nie, W. (1995), A framework for strategic service management, Journal of Operations Management, Vol. 13 No. 4, pp. 323-37. Kon, A. (1999), A Internacionalizacao dos Servicos, Revista de Administracao de Empresas RAE, Vol. 39 No. 1, pp. 42-54. Lovelock, C. and Gummesson, E. (2004), Whither services marketing? In search of a new paradigm and fresh perspectives, Journal of Service Research, Vol. 7 No. 1, pp. 20-41. Malhotra, M.K. and Sharma, S. (2002), Spanning the continuum between marketing and operations, Journal of Operations Management, Vol. 20 No. 3, pp. 209-19. Morris, B. and Johnston, R. (1987), Dealing with inherent variability: the difference between manufacturing and service?, International Journal of Operations & Production Management, Vol. 7 No. 4, pp. 13-22. Mosley, H. and Mayer, A. (1999), Benchmarking national labour market performance: a radar chart approach, Report prepared for European Commission, Directorate-General V Employment, Industrial Relations and Social Affairs (DG V/A2), Discussion Paper FS I 99 2202, March. Polito, T. and Watson, K. (2004), The content continuum: extending the Hayes and Wheelwright process-product diagonal to facilitate improvement of services, Journal of American Academy of Business, Vol. 4 Nos 1/2, pp. 406-12.

An operations management view 461

IJOPM 27,5

462

Reis, D. and Pena, L. (2000), Linking customer satisfaction, quality and strategic planning, Revista de Administracao de Empresas RAE, Vol. 40 No. 1, pp. 42-6. Rhodia (2006), Rhodia Engineering Plastics America do Sul, available at: www.rhodia-ep.com.br/ (accessed April 4). Roth, A.V. and Menor, L. (2003), Insights into service operations management: a research agenda, Production and Operations Management, Vol. 12 No. 2, pp. 145-64. Shostack, G.L. (1977), Breaking free from product marketing, Journal of Marketing, Vol. 41 No. 2, pp. 73-80. Shostack, G.L. (1982), How to design a service, European Journal of Marketing, Vol. 16 No. 1, pp. 49-63. Simons, J.V. Jr and Russell, G.R. (2002), A case study of batching in a mass service operation, Journal of Operations Management, Vol. 20 No. 5, pp. 577-92. Slack, N., Lewis, M. and Bates, H. (2004), The two worlds of operations management research and practice: can they meet, should they meet?, International Journal of Operations & Production Management, Vol. 24 No. 4, pp. 372-87. Stevenson, W. (2005), Operations Management, 8th ed., Irwin/McGraw-Hill, New York, NY. Vargo, S.L. and Lusch, R.F. (2004a), Evolving to a new dominant logic for marketing, Journal of Marketing, Vol. 68 No. 1, pp. 1-17. Vargo, S.L. and Lusch, R.F. (2004b), The four service marketing myths: remnants of a goods-based, manufacturing model, Journal of Service Research, Vol. 6 No. 4, pp. 324-35. Waxie (2006), available at: www.waxie.com/company_overview.html#great (accessed December 4). White Martins (2006), available at: www.whitemartins.com.br/site/produtos-servicos/si_index. jsp?area integrados (accessed February 4). Winsor, R.D., Sheth, J.N. and Manolis, C. (2004), Differentiating goods and services retailing using form and possession utilities, Journal of Business Research, Vol. 57 No. 3, pp. 249-55. Wise, R. and Baumgartner, P. (1999), Go downstream: the new prot imperative in manufacturing, Harvard Business Review, Vol. 77 No. 5, pp. 133-41. Wright, C.M. and Mechling, G. (2002), The importance of operations management problems in service organizations, Omega, Vol. 30 No. 2, pp. 77-87. Zeithaml, V.A., Parasuraman, A. and Berry, L.L. (1985), Problems and strategies in services marketing, Journal of Marketing, Vol. 49 No. 2, pp. 33-46. Further reading Boudreau, J., Hopp, W., McClain, J.O. and Thomas, L.J. (2003), On the interface between operations and human resources management, Manufacturing & Service Operations Management, Vol. 5 No. 3, pp. 179-202. Ellram, L.M. and Feitzinger, E. (1997), Using total prot analysis to model supply chain decisions, Journal of Cost Management, Vol. 11 No. 4, pp. 12-22. IBM (2004), Annual Report to Shareholders, IBM, Armonk, NY. Johnston, R. (1999), Service operations management: return to roots, International Journal of Operations & Production Management, Vol. 19 No. 2, pp. 104-24. Johnston, R. (2005), Service operations management: return to roots, International Journal of Operations & Production Management, Vol. 25 No. 12, pp. 1278-97.

Karmarkar, U.S. (1996), Integrative research in marketing and operations management, Journal of Marketing Research, Vol. 33 No. 2, pp. 125-33. Normile, D. (2005), Branded in China, Electronic Business, Vol. 31 No. 3, pp. 60-5. Roth, A.V. and van der Velde, M. (1991), Operations as marketing: a competitive service strategy, Journal of Operations Management, Vol. 10 No. 3, pp. 303-28. Rust, R.T. and Chase, R.B. (1999), Introduction to the special issue on service marketing and service operations, Production and Operations Management, Vol. 8 No. 3, p. 207. Swank, C.K. (2003), The lean service machine, Harvard Business Review, Vol. 81 No. 10, pp. 123-9. Swartz, T.A., Bowen, D.E. and Brown, S.W. (1992), Fifteen years after breaking free: services then, now and beyond, Advances in Services Marketing and Management, Vol. 1 No. 1, pp. 1-21. Thomas, D.R.E. (1978), Strategy is different in service businesses, Harvard Business Review, Vol. 56 No. 4, pp. 158-65. Corresponding author Henrique Luiz Correa can be contacted at: HCorrea@rollins.edu

An operations management view 463

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.