Strategies for Globalizing Service Operations

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Strategies for Globalizing Service Operations

• By Curtis P. McLaughlin
• James A. Fitzimmons

Presented by David Lipnisky
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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.

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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.

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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.

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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.

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Factors and Sources for McLaughlin (1992)
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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

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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.

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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.

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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)

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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.

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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.

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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.)

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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.

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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.

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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.

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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.

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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

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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).

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Taking Services Global
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Multi-Country Expansion

• Exporting a successful service to another country
  without modification can sell a countrys
  cultural experience.
• McDonalds
• Benihana
• Duplicating a service worldwide is easiest
  accomplished if business is based on routine
  services. (McDonalds)

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Multi-Country Expansion

• Some modifications must be made to better
  accommodate foreign markets.
• McDonalds 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.

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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.

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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?

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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.

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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.

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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.

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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.

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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.

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Thank You

• Questions?