Cutting Corners and Working Overtime: Quality Erosion in the Service Industry

By Rogelio Oliva, John D. Sterman. Management Sciences, 2001

528 citations recorded by the source corpus.

The erosion of service quality throughout the economy is a frequent concern in the popular press. The American Customer Satisfaction Index for services fell in 2000 to 69.4%, down 5 percentage points from 1994. We hypothesize that the characteristics of services--inseparability, intangibility, and labor intensity--interact with management practices to bias service providers toward reducing the level of service they deliver, often locking entire industries into a vicious cycle of eroding service standards. To explore this proposition we develop a formal model that integrates the structural elements of service delivery. We use econometric estimation, interviews, observations, and archival data to calibrate the model for a consumer-lending service center in a major bank in the United Kingdom. We find that temporary imbalances between service capacity and demand interact with decision rules for effort allocation, capacity management, overtime, and quality aspirations to yield permanent erosion of the service standards and loss of revenue. We explore policies to improve performance and implications for organizational design in the service sector.

Subfields: Management Information Systems, Organizational Behavior and Human Resource Management

View Paper: https://www.semanticscholar.org/paper/6e7bcd9fc13decc2095dd24fc14327bf8b56fa32

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Citations in the corpus

Bodies of Knowledge for Research in Behavioral Operations (2009, background): “…and Sterman 1998), project management (Lyneis et al. 2001), new product development (Ford and Sterman 1997, Repenning 2001), process improvement (Repenning and Sterman 2002), sales force management (Morecroft 1985), service management (Oliva and Sterman 2001), and ﬂeet management (Moxnes 1998).”
Model calibration as a testing strategy for system dynamics models (2003, methodology): “This formulation change had a direct impact on the policy recommendations emerging from the study once the asymmetric adjustment was identified as an erosion of quality and not a productivity gain; the new understanding on the formation of expectations created the need for aggressive management driv”
Service Growth in Product Firms: Past, Present, and Future (2017, background): “Previous work (Oliva, 2001; Oliva & Sterman, 2001) had suggested that a services operation runwithmanufacturing's emphasis on throughput and efficiency will result in eroding service quality standards.”
Managing Functional Biases in Organizational Forecasts: A Case Study of Consensus Forecasting in Supply Chain Planning (2009, background): “Errors in forecasting often cross the organizational boundary and translate into misallocation of resources that can impact shareholders’ return on investment (Copeland et al. 1994), and affect customers’ perception of service quality (Oliva 2001, Oliva and Sterman 2001).”
On value and value co-creation: A service systems and service logic perspective (2008, background): “Adam Smith (1776) brought the discussion of value and value creation into the development of economics and the study of market exchange.”
Limits to growth in the new economy: exploring the ‘get big fast’ strategy in e‐commerce (2003, methodology): “Lifestyle attractiveness depends on the average workweek—sustained long workweeks reduce job attractiveness and increase attrition (Oliva and Sterman 2001; Sterman 2000, Ch. 14).”