SBP 1f: Weighting the Mixture

This principle occurs because value of a service process or of individual process segments is judged by how well it adds value to customer inputs. The noted exception is process steps that protect the company's ability to remain in business by meeting regulatory or risk-control requirements, or by keeping an accurate accounting of production, revenues, and costs.

This Service Business Principle captures the idea that some components of a service process are more important than other steps. This knowledge can be helpful in understanding where to focus management attention, and where, perhaps, to simplify the process by eliminating steps.

How do we know how valuable each step of a service process is? One way is to ask about each process step: “How would the customer react if we eliminated this step? How much less would they be willing to pay for the service?”

In some cases, the customers are not willing to pay for the steps, but they are essential for other reasons, such as:

• accounting needs. Companies need to track revenues, costs, and other production-related data to assure they are in adequate control. For example, an essential step in medical offices is to collect and verify patient insurance information, to assure payment will be received. Companies also need to track production itself, which includes the ability to manage and replenish inventories. For example, an auto service process should include a parts ordering step–it would not be cost effective to keep a large supply of every part in stock at all times. Keep in mind that excessive administrative burdens placed on the customer as a result of the company's accounting needs can have an adverse affect.
• risk control. Some process steps may be in place to limit the risks to the company. For example, amusement parks have ways of keeping passengers with health problems off of dangerous rides, such as large signs at ride entrance. The customer step of reading the sign is essential in reducing the company's potential for lawsuits.
• regulatory requirements. Often, government regulation is risk control that some companies would not do otherwise. For example, bus transportation laws require that buses do not proceed until all passengers are a certain distance back in the bus (behind the “white line”). Of course, that makes sense anyway to reduce the likelihood of passengers losing their balance and falling through the front windshield. The regulation requires that all bus companies comply.

If a process step is not required for these types of reasons, and does not add any value in the eyes of the customer, it should perhaps be subjected to further scrutiny.

By deciding where and how value will be added to customer inputs, the company is implicitly deciding the fundamental strategy question: What business are we truly in? The concept of “strategic alignment” means that the ways the service process adds value to customer inputs should be consistent with the business that the company claims to be in.

Assure that the service business is focusing efforts on process steps which are truly adding value, and be careful about allowing non-value-adding steps which are done simply because “that is the way we have always done it here.”

For each process step or process segment, it is useful to ask the question “Why is this necessary?” Usually it will be obvious, but in some instances the answer will be very revealing about the unimportance of a particular step.

Consider the process of movie theater service. From the customer perspective, the process is roughly as follows: Find a parking spot, walk to line, wait in line, purchase tickets, hand tickets to employee at door, wait in refreshments line, purchase refreshments, wait in line to enter theater (if prior showing is not out yet), enter theater, wait for movie to start, eat refreshments and watch movie, wait for crowd to clear enough to depart, walk to car. Where is value added in this process? Nearly all of the value is added in the process segment “eat refreshments and watch movie.” Many of the other steps add little value. For example, why do we purchase a ticket and then immediately give it to the person at the door? Why can't they just put a cash register at the door? (for those who do not want to purchase tickets in advance) Why do we have to wait repeatedly? Why can't we buy refreshments from a cart positioned next to the line outdoors or next to the line to enter the theater or from an employee walking around the theater while customers are waiting for the movie to start? Even though such questions may represent an oversimplification of complex concerns, they do illustrate that some process segments are clearly more important and essential than others.

What business are airlines in? An obvious answer is air transportation. However, many airlines spend a lot of effort on process steps not pertaining to air transportation. For example, many airlines offer full in-flight meals on relatively short (2-3 hour) flights. Granted, the cost of materials for airline food certainly could not be too great. The greatest cost is in additional airline process complexity. There is the process of forecasting meal requirements, the process of procuring and storing the meals in inventory, the process of “quality” control, the process of tracking customers with special dietary needs, the process of loading the meals onto the airplane, the process of heating and serving meals, the process of collecting trash and sorting out the utensils, the process of unloading the trash from the plane, the process of washing utensils and replacing those that accidentally wound up in the trash, the process of extra seat cleaning due to messy passengers, and so forth. From a procedural perspective it is very costly to offer in-flight meals. So why do some airlines do it when it is not absolutely necessary (such as on overseas flights)? The answer that airlines would probably give is: “because we have done it for years, and customers have come to expect it.” Well, why don't you just cut the meals and pass the process savings on to us?! We will get a real meal before we get on the plane!

Some airlines have recognized that the in-flight meal process adds little value. As a result, some airlines have gone to offering a “snack” (a pre-packaged sandwich that is not heated) instead of a heated “meal.” Southwest Airlines offers no meals, but only peanuts and a drink. (The length of their flights lends itself to that.) If airlines were concerned about starving customers, a more cost-effective approach would be to let passengers pick out a sandwich from a vendor's cart at the gate before boarding! Many passengers would eat their sandwich before boarding, which would turn the meal clean-up process over to the people who vacuum the terminal!

With manufacturing, the value of a product is found in the product features, which features are established at various manufacturing process segments. If features are eliminated, then the production steps to create those features can be eliminated.

1. How is value added in the production process? In other words, how are the outputs from the production process more valuable to customers than the inputs? (If they are not, plan on going out of business.)
2. How much more are customers willing to pay for outputs than they would be willing to pay for the inputs? (This gives an indication of the value added by the process.)
3. In the production process, where does this value creation occur? (This should indicate the weight of various elements.)
4. Are some process steps important because of regulatory or liability-control reasons, even though they are not valued by the customer?
5. How much of the value is added by changing customer inputs, and how much is added by manipulating non-customer inputs?

Redraw your service process flowchart. Identify the top three steps where value is added by writing . Identify steps that are necessary for tracking production (or customers) or for accounting with a circled “A.” Identify any steps that are performed for regulatory reasons with a circled “R.” Identified steps that occur to limit the company's liability or risk with a circled “L.” If you had to eliminate one of the steps, which one would you eliminate first? Why?