Are Service Providers More Or Less Labor Intensive Than Manufacturers

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From Dr. Scott Sampson's Agreement Services Businesses Book (click for tabular array of contents)
SBP 2c: Customer Proximity⇐Prior —[in Unit of measurement 2: Services Fundamentals: Planning]— Adjacent⇒SBP 2e: Perishable Output Illusion

SBP 2d: Labor Intensity

With services, there are often forces that restrict automation. Therefore, the service production process tends to be more labor-intensive than manufacturing processes.

Why it occurs

This principle occurs considering customer inputs can very widely, making it difficult for automation to adapt to the input variation. Besides, customer-self inputs are resistant to automation and ofttimes prefer a personal touch. (This volition be discussed later in SBPs: Technological Depersonalization and Capricious Labor)

Details

This Service Business organisation Principle merely observes that service businesses tend to be labor-intensive. In other Service Business Principles, namely Technological Depersonalization and Capricious Labor, the causes and implications of labor intensity volition be discussed in more item.

1 manner to consider labor intensity is to use Schmenner'southward "Service Process Matrix" (which is described in the supporting reading). Schmenner graphs service businesses along ii dimensions: labor intensity and degree of interaction and customization. A two-by-two graph might exist depicted as follows:

The line marked "Diag" represents the diagonal. There is a propensity for service businesses to move to the diagonal or up the diagonal. This implies that there is a human relationship between interaction and customization, and labor intensity. This relationship is alluded to in this Service Business Principle: customer inputs (particularly those involving interaction and customization) limit the potential for automation, which therefore increases the labor intensity of the process.

In the Service Procedure Matrix, labor intensity is divers as the ratio between labor costs and capital costs, which is a price-based view. That definition of labor intensity skews labor intensity measures based on capital letter intensity. An alternating manner to view labor intensity is from a production process intensity perspective–defining "labor intensity" as percent of process effort which is achieved past labor (every bit apposed to machine endeavour). I consider this latter definition of labor intensity more appropriate, but not as easy to judge.

How information technology effects decisions

Nosotros must not neglect labor evolution, since labor may ultimately exist the limiting cistron for our product capabilities.

What to do nigh it

The "motion upward the diagonal" thought of the Service Process Matrix implies that labor intensity tin can be reduced when interaction and customization are reduced.

In some cases information technology is possible to control the customer interaction, such every bit by standard procedures and customer involvement in the procedure. For instance, when a new patient visits a dr.'s office for the starting time time, they are given a myriad of forms for medical history and insurance information. Having those standardized forms is less labor-intensive than interviewing each patient personally.

Customization tin be reduced past providing a standard "menu" of service options. Automatic teller machines only permit a fixed set of bank transactions, but those that are about commonly needed. More than customized transactions, such as mortgage planning, are less automatic and thus more labor-intensive.

With nearly services at that place are clear limits to the ability to reduce labor intensity. Much of the value of many services is in the interaction and customization. Rather than attempting to reduce labor intensity, such service providers must consider effective ways of developing labor into a serviceable and productive resources. Effective ways to manage labor include preparation and chore design, which will be discussed in Unit 8: Man Resources Management.

For instance

Many companies, such as Marriott Hotels and Resorts, esteem labor as the key to providing excellent client service. Despite the introduction of technologies (such as in-room cheque-out), the overall process continues to be very labor-intensive. Therefore, the company expends great effort in employee selection and training.

A visitor that has a well-thought-out arrangement for labor direction is Disney Earth. Their operations are extremely labor-intensive, and much of the Disney experience is divers by the quality of labor. Disney has a organisation for hiring college students on "internships" that involve a semester or two at a Disney park operation–doing anything from operating an attraction to sweeping the streets. In addition to their work responsibilities, the interns are required to attend extensive training courses nigh the company'south civilization and operations. (Including their legendary "traditions" course where the students learn, among other things, the names of the Seven Dwarfs.) Students who do well during that internship can utilise for an "advanced internship" in more meaningful functional areas. Thus, through these programs Disney maintains high-quality, low-price labor, and accomplishes much in the way of career employee selection.

My airline example

Despite the large investment in uppercase equipment and technology, much of the airline production process even so tends to exist labor-intensive. The fortunes of airlines tend to be highly correlated with the relationships between labor and management. Airlines that take had labor problems, such as USAir, have likewise had profitability issues. Airlines known for skillful labor practices, such every bit Southwest Airlines, tend to be quite profitable.

How manufacturing differs

With manufacturing, production is ofttimes standardized, and inputs practice not care who or what is working on them, therefore technology tin can oft easily replace labor.

Analysis questions

1. What percentage of operating costs is labor?

2. Has labor content changed over time?

3. How might customers answer if production labor was replaces with automation?

Application exercise

For a Service Process Matrix, estimate the degree labor intensity of your business organisation process. Does the process tend to be a labor-intensive? Identify the location of your business on the Service Process Matrix below. (Students submitting over the Internet should see instructions at the lesser of the Application Exercise Submission class.) Marking the area where other companies in that industry tend to be on the matrix. Identify a few companies in the industry that are positioned elsewhere. (Put messages on the matrix and tell what company each letter represents.) How do these other companies differ in terms of labor intensity? Why do they differ? What advantages or disadvantages are at that place to the alternate positioning?

For this exercise, you might estimate "labor intensity" as the portion of product costs attributed to labor, and "degree of interaction and customization" as the extent employees interact with individual customers so that the service can exist customized.

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Are Service Providers More Or Less Labor Intensive Than Manufacturers,

Source: https://services.byu.edu/sw/doku.php?id=usb:unit2:sbp2d

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