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<HTML><CENTER></HTML> From [[http://marriottschool.byu.edu/emp/employee.cfm?emp=ses3|Dr. Scott Sampson]]'s **//[[usb:toc|Understanding Services Businesses]]//** Book (click for [[usb:toc|table of contents]])\\ ---[in [[usb:unit8|Unit 8: Human Resources Management]]]--- Next=>[[usb:unit8:sbp8b|SBP 8b: Culture Compensation]] <HTML></CENTER></HTML> ====== SBP 8a: The Choice of Employees ====== |**With services, a critical employee skill is the ability to exercise judgment in divergent processes. When the consequences of poor judgment are great, judgment ability often requires years of training and experience and the employees tend to be very costly. However, even complex rule-governed systems can be trained or automated. Good employee selection is much more important for divergent processes than for complex processes.**| ===== Why it occurs ===== This principle occurs because nonstandard customer inputs can lead to nonstandard production. With some services, no two units of production are handled exactly alike, preventing the establishment of highly standard operating procedures. ===== Details ===== Two definitions are in order: complexity and divergence. * **Complexity** is the number and intricacy of the steps in a process. Complex procedures have a lot of steps, and may include a lot of process branches. A process branch is a rule that changes the procedure based on a condition. For example, a dry cleaner may say that anything made of synthetic materials goes in one machine, and anything made of organic materials goes in the other. * **Divergence** is the requirement for exercising judgment, or discretion, in a process. Divergent processes can go any number of ways, and there are no small set of rules that can make the decision. In divergent processes, the service employee is expected to figure out the best thing to do at the time of the decision. The way to spot complexity in a process flowchart is to count the number of steps: complex procedures have many steps (or the steps have many substeps). Divergence is seen in the nature of the steps: divergent procedures have steps that can be handled any number of ways depending on the circumstances of production. **Substituting Complexity for Divergence** Complexity and divergence are not opposites on a continuum. In fact, they can exist independently of one another. A process can be complex and divergent, or neither complex nor divergent. However, in some situations divergence can be replaced with complexity to some degree. This is done by replacing a divergent step with a set of rules (if possible). In many cases, the number of rules necessary to replace a divergent step would be enormous. A software company that creates rule-based software to help managers in retail environments estimates that a typical rule-based system for a company will contain perhaps 100,000 rules! These highly complex systems are called "expert systems," because they mimic the judgment of an expert. The reason to substitute complexity for divergence is that an amount of divergence tends to be much more costly than an amount of complexity. One source of divergence's high cost is the more expensive labor it typically requires. Further, divergence drives out efficiencies of task specialization. For example, Ritz-Carlton Hotels designed the job descriptions for various hotel employees to include "breaking away" from the employee's task whenever it appeared a customer needed anything. This meant that the employees needed to expend quite a bit of judgment about when to break away and what to do to resolve the customer problems. The result of such a job description approach is much higher labor costs. (One industry executive reported that Ritz-Carlton had twice the number of employees per room as other hotels, which was not confirmed, but would make sense.) {{ http://upload.wikimedia.org/wikipedia/commons/3/3f/HK_The_Ritz-Carlton_hotel_r.JPG?400x300|RitzCarlton}} //Divergence// differs from mere //customization// in a process. Customization can be accomplished by a set of low-divergence process steps (if customers ask for A, give them A; B, give them B, etc.) //Mass customization// can be accomplished by providing a high degree of customization with little divergence. This customization is accomplished by //complexity// instead of divergence, often using computer technology. The on-line service Yahoo! is able to provide highly customized Internet services with little divergence requirements-the customization is all handled by their software. In the //Cost Savings by Service-Manufacturing// Service Business Principle, Dell Computer was described as employing mass customization-computer systems undergo final assembly based on customer orders (the company does not exercise divergence in this process, nor do they make a computer from scratch for every customer). In many cases it may not be //practical// to substitute complexity for divergence. This is because a lot of complexity is typically required to replace a little divergence. For example, how complex would it be to substitute a standard telephone operator with a computer who understands when customers mis-pronounce common names? (like saying "seen" instead of "shawn" for the name "Sean") It is easier to just hire an employee that can handle enough divergence to understand people's peculiar accents. However, something simple such as having customers say "yes" or "no" to the computer's question "Will you accept a collect call from ___?" may be quite practical.((see February 18, 1998 Business Week.)) Even when it is practical to substitute complexity for divergence, sometimes it may not be a good idea. Service providers should be careful about eliminating divergence arbitrarily, since often the greatest value of a service is added at the divergence step. For example, the greatest value in a physician's service is the highly-divergent step of identifying a diagnosis and prescribed treatment. The most expensive labor is that for divergence processes with critical outcomes for poor judgment. Physicians come to mind, as do corporate attorneys, investment bankers, and CEOs. Despite the numerous books describing the seven easy steps to making it big as a investment banker, CEO, etc., the fact is that such positions require a //great deal// of judgment, and poor judgment can be extremely costly. ===== How it effects decisions ===== Decisions must be made about where judgment should be allowed in the service process, and where it is more appropriate to establish standard operating procedures. Sometimes we may desire to eliminate process complexity by trusting employees to exercise their judgment. In other cases, we may not want to hire employees with judgment skills (which can be costly); therefore we may need to replace the divergence with structured decision steps. When employee judgment is required, management needs to decide on effective means of selecting and developing employees. ===== What to do about it ===== The service provider should match "judgment capacity" with "judgment requirements." Judgment capacity is the ability of a service employee to exercise good judgment. Judgment capacity is managed largely by the selection procedures described above. Nevertheless, it is possible, over a course of years, to give employees experiences that will help them develop their judgment capacity. The judgment requirement is defined by the divergence in the service process. The judgment requirement can be manipulated by exchanging decision rule complexity for judgment, if possible. Remember that the exchange is not simple--it usually takes a lot of decision rule complexity to substitute for a small amount of divergence. **Selecting Employees for Divergent Processes** {{ http://farm1.static.flickr.com/201/480996404_1d224b03a2.jpg?400x260|Behavioral Interview}} How does one select employee to work in divergent processes? Since divergence is difficult to train, it is often necessary to evaluate the prospective employee's potential for exercising good judgment prior to making a hiring decision. Evaluating a person's judgment can be difficult, but not impossible. The following are a few techniques: * Case interviews, which is to give the job candidate a business decision scenario and ask her to what she would do. Although the interviewer is concerned with the decision that would be made by the candidate, she is perhaps even more concerned about the thought process the candidate goes through to reach that decision. The case-interview technique is particularly popular with consulting firms, which require that employees deal with a great deal of consulting-process divergence (and pay them accordingly). * Experience questioning, where the job candidate is asked of an instance where they had to make a difficult decision, and what they did. Decisions are difficult when they involve divergence. The candidate is likely to describe an instance where the result of the decision was positive. Nevertheless, experience questioning can reveal much about the process of exercising judgment. * Reference questioning, in which people who have supervised the candidate's references are questioned about the candidates ability to exercise judgment. Often, this is accomplished by simply reading letters of recommendation. More specific information can be gained by contacting references. Other useful techniques include abstract questioning, situational vignettes (similar to case interview), and role playing. (These techniques are discussed on Fitzsimmons2 pages 243-244.) It should be obvious that selecting employees for judgment positions can be much more time-consuming and costly than traditional hiring methods. The amount of effort should be commensurate with the position requirements as defined by the divergence of the process. ===== For example ===== What is the difference between a midwife and an obstetrician? About $2,000. What else? Midwives are trained in the many steps to deliver a baby. In fact, many midwives give more superior bedside manner than most obstetricians. The difference, as explained by an obstetric friend, is that obstetricians have training and experience for the highly divergent process of handling abnormal situations. How many abnormal situations might occur? The list is probably endless. As a result, it is not practical to train a midwife in millions of step of procedures for handing abnormalities. The extensive training and experience of obstetricians is intended to prepare them to make judgements in situations with circumstances which may be completely unique. (In fact, the whole concept of medical "residencies"--three years of on-the-job experience as part of medical training--captures the idea that you cannot train divergence by classroom study alone.) Investment banking has been a very divergent process--and investment bankers with good judgment are very expensive. Some investment banking firms have reduced the need for divergence by developing complex computer algorithms that make securities (stocks, bonds, etc.) trading decisions. This is called "programmed trading," and it can fill the process needs of a large portion of the day-to-day work of investment banking firms. ===== My airline example ===== {{ http://upload.wikimedia.org/wikipedia/commons/0/07/C130_cockpit.jpg?300x200|Cockpit}} Perhaps the most divergent component of an airline process is the work of pilots. A pilot must be able to handle an extreme variety of operational conditions. Nevertheless, most of what pilots do in the course of a flight does not require great deals of judgment. I observed this one time when I rode in the cockpit of a jumbo jet. Surprisingly, once the jet had ascended to the desired altitude, the work of the pilot and co-pilot was mostly just chatting about unrelated topics. Occasionally one would check the map book to assure they were flying in the right direction. Also, on air traffic controller suggestion, they would flip the knob on a little dial that would cause the jet to slowly change altitude or bearing. But, all of the control of the direction and altitude was implemented by the "autopilot"--a sophisticated computer program that knew how to fly the plane and adjust for atmospheric conditions (wind and turbulence). As we approached the San Francisco airport, the co-pilot finally disengaged the auto-pilot and manually landed the jet. The pilot told me that pilots are paid as much as they are primarily to takeoff and land planes, which is the part of the air transportation process where most of the risk and judgment steps occur. ===== How manufacturing differs ===== With manufacturing, the production processes are often complex, but seldom divergent. ===== Analysis questions ===== - What parts of the process have high divergence? - What parts of the process have low divergence? - How do the employees and labor costs differ between the two areas? - Can divergence be decreased by developing standardized procedures? (substituting complexity for divergence) ===== Application exercise ===== In your service business process, identify a step that contains a degree of divergence--a step where the service employee is required to exercise judgment. (If you are unable to locate such a step, then think of a divergent part of a related process.) Describe this step, and how judgment influences the outcome. What happens if the employee exercises poor judgment? Design a simple technique for selecting new employees with sufficient judgment capacity to handle that process step. (For example, describe a simple case interview question or situational vignette.) Attempt to describe what would be involved in breaking that divergent step down into a series of rule steps ("if this, do this" "if that, do that" etc.). Comment on how much more complex the process would be if the need for employee judgment was diminished and that divergent step were replaced with standard operating procedures. ===== Navigation ===== <HTML><CENTER></HTML> ---[in [[usb:unit8|Unit 8: Human Resources Management]]]--- Next=>[[usb:unit8:sbp8b|SBP 8b: Culture Compensation]]\\ (c) 1998-2008 [[http://marriottschool.byu.edu/emp/employee.cfm?emp=ses3|Dr. Scott Sampson]] (get a copy of **//[[usb:toc|Understanding Services Businesses]]//** at [[http://www.amazon.com/gp/product/0471210501/qid=1151528743/sr=11-1/ref=sr_11_1/002-2164421-9276812?s=books&v=glance&n=283155|Amazon]] or [[http://search.barnesandnoble.com/booksearch/isbnInquiry.asp?z=y&isbn=0471210501&TXT=Y&itm=1|Barnes & Noble]]) <HTML></CENTER></HTML>
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