Strategies for Globalizing Service Operations

1. Strategies for Globalizing Service Operations By Curtis P. McLaughlin James A. Fitzimmons Presented by David Lipnisky Article 17

2. Objective • As foreign competition in the service sector increases, domestic services must develop a global service strategy. • Develop a methodology to assist service managers in developing strategies for entering and competing in global markets. Article 17

3. Objective cont. • To develop a strategy consider the following questions: • What are the factors that we can use to classify services in terms of their potential for moving globally? • Service Globalization Factors. • How do these factors translate into strategies for the globalization of specific services? • Globalization Strategy. Article 17

4. Previous Research • Chase (1978), Haywood-Farmer (1988) and Schmenner (1986) • Most useful dimensions to classify service operations: • Consumer involvement and customization. • Complexity of inputs and outputs. • Intensity of labor. Article 17

5. Previous Research • McLaughlin (1992) suggested adding five key operations issues of international services: • Level of cultural adaptation. • Impact of telecommunications. • Potential for unbundling service components. • Approaches to teamwork. • Re-engineering opportunities. Article 17

6. Factors and Sources forMcLaughlin (1992) Article 17

7. Previous Research • Apte and Mason (1992) • Customer contact and information intensity are the two primary dimensions that determine which service operations go overseas. • Operations research, computer programming • Prime examples due to little customer interaction, information and labor intensity. • Cultural diversity can increase creativity • May result in problems meeting requirements Article 17

8. Previous Research • Reich (1991) • Divide workers into three types • (1) Routine producers • (2) In-person servers • (3) Symbolic analysts • Routine producers (mfg. labor) replaced by automation • "Routine producers and in-person servers are loath to do anything that might deter symbolic analysts from coming to their city or region, or even their nation;...The lower, less mobile four-fifths of the population is prepared to provide symbolic analysts with generous inducements to come or to stay" • Labor market pressures push workers from manufacturing to service industries. Article 17

9. Previous Research • Wilson (1992) • Development of back-office operations of US firms in Asia, Europe, and the Caribbean • Found that routine service work could be unbundled and broken into simpler functions to facilitate the use of cheaper, more specialized labor. • Provided managers a new approach to break up back-office tasks for outsourcing. Article 17

10. Service Globalization Factors • Elements of service operations that need to be considered when selecting a process as a possible candidate for outsourcing. • For service operations consider the level of the following 6 factors: • Customer Contact (front-room) • Customization (front/back-room) • Complexity (back-room) • Information Intensity (back-room) • Cultural Adaptation (front/back-room) • Labor Intensity (back-room) Article 17

11. Customer Contact • Front-room operations based. • Contact personnel speak or trained in native language. • For success, the service must be adapted to the culture as well. • Example: Euro Disney • Main changes were both French/English used and adaptation to the French culture. The major challenge was training the “independently-minded” French employees to act out the roles of Disney characters and perform their duties in a courteous manner. • Adapting the service contact to native culture, one of the more challenging tasks for service managers. Article 17

12. Customization • Language and distance create barriers to effective communication, which detracts from ability to customize service to customer needs. • Coopers & Lybrand • Opened an office in Hungary, found clients to be more comfortable working with Hungarian auditors. • Customer contact elements also effect customization. • Front/back-room oriented. Article 17

13. Complexity • Globalization of back-room tasks fall under two categories: • Make existing work routine such as data entry. • Technical but mundane work such as reprogramming or file expansion that can lead to more complex tasks. • Workers in other countries • Are often eager for such jobs and are content being compensated according to the local job market. • Often approach work with different mindset resulting in more motivation and creativity. • When workers have more motivation and creativity they can take on more complex tasks which can lead to increased outsourcing of back-room activities. (Like training new employees.) Article 17

14. Information Intensity • Once information is digitalized, it can be globalized. • International communication using satellites make up for poor infrastructures. • Telecommunications and air freight have opened up many information-intensive services to globalization. • Example: Stock and financial markets, consulting service. Article 17

15. Cultural Adaptation • Adapt services to customer culture or deliver service that built the reputation in the home country? • Will changes still align with service strategy and mission? • Realign strategy? • Both front and back-room activities can be impacted. • Culture can effect customer service and scheduling. • Culture and economy can effect back-room tasks, scheduling, and employee compensation. • Small town workers accept lower compensation to avoid disrupting the fabric of community. • Culture can be individual or group oriented. Article 17

16. Labor Intensity • Seek less-expensive, well-educated labor. • Labor-intensive tasks can be supported by major investment in communication and computer systems to transfer information. • Labor rates in some countries are fractions of domestic labor rates. • Labor and time intensive activities are often the prime candidates for globalizing. Article 17

17. Other Considerations • Technology is improving worldwide. • Distance is becoming less of a factor. • Governments are becoming aware of global market changes and offer incentives for businesses to provide work. • Decreasing technical and legal restrictions. Article 17

18. Taking Services Global • Five basic Globalization Strategies • (1) Multi-country expansion • (2) Importing customers • (3) Following your customers • (4) Service unbundling • (5) Beating the clock • These major strategies have been used by companies that have entered global markets. • The Globalization Strategies are compared with the Service Globalization factors in a matrix to identify strengths and challenges for each strategy and factor. • Displayed in Table II Article 17

19. Taking Services Global • These strategies are not all mutually exclusive. • Strategies can be combined such as multi-country expansion with beating the clock. • Table II contains a summary of key opportunities and potential problems that each (6) service globalization factor (left) contributes to each (5) global service strategy (top). Article 17

20. Taking Services Global

21. Multi-Country Expansion • Exporting a successful service to another country without modification can sell “a country’s cultural experience.” • McDonald’s • Benihana • Duplicating a service worldwide is easiest accomplished if business is based on routine services. (McDonald’s) Article 17

22. Multi-Country Expansion • Some modifications must be made to better accommodate foreign markets. • McDonald’s in Germany serving Beer • McHefeweizen anyone? • Federal Express in Spain • Midday Siesta extends business and pickup hours later into evening. • The level of cultural adaptation determines if a service will succeed or fail. Article 17

23. Importing Customers • Customers come to location of service because of unique features: • Yosemite, Hawaii, Yellowstone • Disneyland/World • Universities, Museums • Provide extended services for lodging, student loans, discounted transportation. • Works best when customers are willing to travel long distances or stay for extended amounts of time. • How can your service make it easier and more enjoyable for you customers? • Must also adapt to customer cultures. Article 17

24. Follow Your Customers • Services can follow previously global customers around the world. • Any additional foreign customers acquired while serving the primary customer adds opportunity for growth. • This leaves the service manager with interesting choices: • Design the service to follow customers and their needs? • Design it to adapt to the local culture? • Or make a compromise between the two, hoping to have a successful straddle? Article 17

25. Follow Your Customers • Straddles may not be very successful due to increased variation or complexity of the service. • We know what variation leads to: quality and consistency problems. • Elements also fall under Multi-Country Expansion. Article 17

26. Service Unbundling • Break-up elements of service processes to determine what can be contracted out. • Efficiency and labor savings can result from focusing on specific back-room tasks. • Labor-intensity of a process is also a factor. • Managers need to identify the parts of the process that are physical from those that are informational to make service unbundling work. Article 17

27. Beating The Clock • The competitive advantage gained by: • Bypassing the constraints of the clock. • Constraints of domestic time zones. • Differing time-based domestic work rules and regulations. • 24 hour operations. • Result in economies of operation. • Provide better access for foreign and domestic customers. • Support time-based competition in operations. • Add to the creativity available in the process without slowing it down. Article 17

28. Beating The Clock • Analyze service operations to determine strategy: • Defensive Strategy: • Involves forming strategic alliances in other time zones. • Help support and maintain operations. • Offensive Strategy: • Activities might involve moving to, or modifying, operations in non-domestic time zones to tap new markets or improving existing ones. • More competition and growth oriented. • Operations infrastructure will need to improve: • Increased coordination and reliability between time zones. • Additional training. • Methods of operation. • Communications infrastructure. Article 17

29. Conclusion • Movement of information is easier and less costly than the movement of goods. • Cultural adaptation will prove to be the biggest challenge for the front-room operations. • Economic and workforce factors in various countries will increase opportunities. • Service operations managers should use these various dimensions to analyze their own process. • From analysis a globalization strategy can be formed. Article 17

30. Thank You • Questions?