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007-0008

An Operations Management View of the Services and Goods Offering Mix

Henrique Luiz Corrêa
Crummer Graduate School of Business, Rollins College
HCorrea@rollins.edu
Telephone number: + 1 407 646-2284, fax number: + 1 407 646-1550

Lisa M. Ellram
Department of Management
Colorado State University College of Business
Lisa.Ellram@business.colostate.edu
Telephone number: + 1 970 491 2719, fax number: + 1 970 491 3522

Annibal José Scavarda
School of Management, Royal Melbourne Institute of Technology University
&
Fundação Getúlio Vargas Business School - EAESP
Department of Production and Operations Management
annibal@rdc.puc-rio.br

Martha C. Cooper
The Ohio State University
Cooper.7@osu.edu
Telephone number: + 1 614 292 5761, fax number: + 1 614 292 0879
&
The Air Force Institute of Technology
Department of Operational Sciences

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Abstract
The aim of this paper is to develop and propose a framework, termed here as the Value Package
Prism, for assessing the kinds of management processes and flexibility available in providing a
range of value packages (services and goods offering mix).
It provides an additional perspective to the traditional set of characteristics (intangibility,
inseparability, heterogeneity, and perishability) for differentiating services and goods. The
proposed framework (stockability, intensity of interaction, simultaneousness of consumption, and
ease of performance assessment) may be useful to operations managers in developing, planning,
organizing, or controlling the production and delivery of services or goods, offering an applied
way to improve operations management by moving away from the extremes of pure services and
pure goods to embrace how businesses compete and operate today, by delivering value packages.
Introduction

The boundaries between services and goods are blurring, as products today are often
characterized by bundled services and goods (Wise and Baumgartner 1999). Because services
and goods are frequently sold together in one single “value package,” it is important to look at
the combination of services and goods as a unit in terms of both practice and research. Thus,
rather than attempt to develop a framework that focuses on the differences between services and
goods, this paper will attempt to provide a useful way to understand the operations management
issues associated with bundled services and goods, or value packages. The goal is to develop a
framework that can provide a basis for guiding operations management decisions when a
particular value package needs to be produced and delivered.

A competitive strategy clearly emerging since the mid 1990s is that of the “total solution
provider.” Rather than just provide goods that the company then has to manage, or services,
which the company has to match with goods to provide value, companies do both within a single

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product offering (Reis and Peña 2000). There are several reasons for this movement towards
combining goods and services. Many goods, including capital, are rapidly becoming
“commoditized.” Adding services to support the goods may provide a way to differentiate goods
offerings to prevent or delay the margin erosion characteristic of “commoditization.”

Adding services to goods has also been used extensively. Due to the ability of service
providers to customize offerings, and have flexibility to customize support, and create personal
relationships, it is often more difficult for organizations to “commoditize” or directly compare
services than to compare goods. Thus, the greater and more varied the services component of the
services-goods bundle, the less “commoditized” the goods will become. More than that, such
services can act as loyalty agents that contribute to increased future business because the
business flow will depend on the relationship flow and, therefore, on keeping or increasing
loyalty of customers. Loyalty in competitive markets only occurs with clients who are very
satisfied with the value package offered (Heskett et al. 1997), and leads to reduced supplier
switching (Johnston and Clark 2001).
In many situations, the first mover towards a mixed services and goods value package in any
given industry would have an advantage.

In this paper a framework is proposed for describing value packages and support
operations managers decisions. It aims to help companies better understand the nature and the
magnitude of the operations changes required when particular aspects of the value package are
altered. From a customer satisfaction standpoint, providing services to support goods helps
ensure that the goods are used properly, thereby increasing customer satisfaction and creating
greater loyalty. This proposed framework has four pillars: stockability, intensity of interaction
with the client, simultaneousness between production and consumption, and difficulty in

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performance analysis. The paper ends with conclusions and suggestions for future research
directions.

The four characteristics or “pillars” of the proposed framework

It appears that the issues that are related to the four following characteristics: degree of
stockability; degree of intensity of interaction with the client; degree of simultaneousness
between production and consumption; and degree of difficulty in performance analysis affect
operations management, strategic formulation and decision making related to the production and
delivery of value packages (Corrêa et al. 2007).

Degree of stockability
The degree of stockability characteristic refers to the ability to inventory items needed to deliver
the service before demand occurs, as well as the ability to inventory the service to be delivered.
This concept underlies the characteristic of simultaneity in the literature. However, this
characteristic is not merely dichotomic, as “simultaneity” is; rather, it depends on the ease of
adopting the strategy of demand leveling for the production and delivery of the different value
package elements, regardless of the proportion of services and goods. An espresso coffee, for
instance, is a physical product and still cannot be stocked, in practical terms, for more than some
seconds. Production and consumption are not strictly simultaneous, but the time span between
one and the other is very short, making it virtually impossible for a coffee shop to stock espressos
in anticipation to demand. A fresh sandwich has a higher degree of “stockability” than an
espresso, because it can be consumed a couple of hours after production – that is why some
shops choose to build anticipation stocks of them to face demand peak hours during the day. The
point here is that a product that is not simultaneously produced and consumed does not guarantee

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that it is possible to build anticipation stocks. How far in advance anticipation stocks can be built
depends on the item’s “degree of stockability ” as a function of the maximum time span between
possible build up of anticipation stocks and the actual demand. While contrary to the notion of
just in time, the option of stocking items can allow more efficient use of capacity, better ability to
adapt to changing demand to meet seasonal fluctuation, and more flexibility in scheduling.

The degree of intensity of interaction

Human participation, including interactions between clients and service providers,
underlie the concept of heterogeneity in the literature. Heterogeneity results from people
performing services differently. Although the literature associates services with the
characteristic of heterogeneity, some services can be very homogeneous. Non-labor-intensive
services, such as Internet shopping, tend to be very consistent. On the other hand, not all goods
are homogeneous. In goods requiring customized craftsmanship, consistency is difficult to
achieve. What matters for operations is neither heterogeneity nor whether the process renders a
service or produces a good, but the degree of intensity of interaction between the customer and
the process. In general, greater customization requires a greater degree of interaction to acquire
information about the customer specific needs. In such cases, the operations manager requires
operations resources that can: listen, interpret, and respond appropriately to the customer. How
much this is needed will vary according to the degree of interaction required (between process
resources and customers) regardless of the process result being a service or a product.
Additionally, the higher the degree of intensity of the interaction of the people and other
resources, the more difficult it will be to control and manage the production and delivery of the
value package. Thus, this characteristic has implications for the right type of production and

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delivery processes and resources, with the more intense interaction requiring more flexibility in
all of these aspects (see Correa at al., 2007 for a more detailed discussion).
Degree of simultaneousness between production and consumption

This characteristic is related to both the concepts of tangibility and inseparability as
presented in the literature. While high simultaneity generally equates to low stockability, low
stockability does not necessarily equate to high simultaneity. The “degree of stockability” of a
product directly impacts the inventory and capacity management options that can be used (e.g. to
what degree anticipation stocks can be built up to better level production), while the “degree of
simultaneousness” directly impacts the quality management options that can be used (e.g.
process and/or finished product quality control). When the production and consumption of a
product occur simultaneously, it is impossible to perform finished product quality control – one
has necessarily to rely on process quality control – this is quite typical of services, but for some
processes that involve the production of physical goods, finished product quality control is also
either infeasible or inconvenient, because the production and consumption of the product have a
high degree of simultaneity, thus requiring that the managers favor process control. Thus, the
type of product or process control adopted depends on the characteristics of the production
processes and on the “degree of simultaneousness” between the production and consumption of
the product, and not whether the value packages are more oriented towards services or goods.

Degree of ease in performance assessment
The ability of the customer to analyze performance is a characteristic that underlies the concept
of tangibility of the literature. Historically, many customer contact services, such as call center
operations, were viewed as intangible and thus difficult to assess. However, this has shifted as
call centers have become more prevalent and frequently outsourced. One can now objectively

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measure the amount of time on a call, the amount of time idle, and the time a customer waits in
the queue. Service measurement is possible. Thus, it is not the tangibility or intangibility of the
offering that drives the measurement issues for operations managers. It is the degree of ease or
difficulty to measure.

Value packages with a low degree of difficulty to assess require formulation of different
management strategies versus those that are difficult to assess, regardless of whether they are
tangible or intangible products.
The next section provides insights into how the characteristics proposed in this paper affect the
design and management of operations systems.

A guideline for designing operations systems based on value package characteristics
From an operations management standpoint, the four proposed pillars (stockability, intensity of
interaction, simultaneousness of consumption, and difficulty to assess) of the Value Package
Prism (see Figure 1) can be used to describe the value package offered to customers. While these
characteristics were adapted from the traditional characteristics, they serve a different purpose.
They are used as a way to help operations managers design and manage production and delivery
processes rather than as a way to differentiate services and goods.
As can be seen in Figure 1, one way to denote a value package based on the four
proposed value package characteristics is a “radar” representation.
The radar representation, also called a spider web chart, is an analytical tool often
associated with benchmarking, which allows for simultaneous presentation of three or more
performance measures (Mosley and Meyer 1999). The radar chart is adapted here to act as a tool
to describe the level of the four proposed value package characteristics in a Value Package
Prism.

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Each of the four segments of the prism is independent of the others and represents a continuum
varying from “low” (in the center at the origin of the segment) to “high” (towards the arrow at
the end of the segment). Thus, each intermediate point is meaningful, corresponding to the
“degree” of simultaneousness (of consumption), intensity of interaction (between the process and
the customer), non-stockability (of the product or service), and difficulty to assess (performance).
A greater or lesser degree of any given characteristic does not meant that it is intrinsically better
or worse. It is simply different, supportive of a different customer strategy and correspondingly
creates different production and delivery issues for operations management.

Discussion

Using the radar diagram to assess proposed value packages can assist operations
managers in anticipating changes and designing the right processes to produce and deliver the
altered value packages. The potential usefulness of the four proposed value package
characteristics is presented in more detail on the following paragraphs.

Increased non-stockability reduces the operations manager’s options. When the product
is less stockable, production leveling by the use of stocks becomes less available. The operations
manager must accept the inability to meet surges in demand, and lose sales, or have extra or
flexible capacity in place to meet potential needs.

Increased degree of intensity of interaction between people (clients and service providers
like employees) and other resources also requires that several aspects of the production and
delivery processes are adjusted. Because the employee directly represents the company, he or
she must have good interpersonal skills and present a positive image to the customer. In
addition, high interaction employees will have to be adaptable, and master the “arts” of listening,
comprehending and adequately responding to customers’ information and requirements. Thus,

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proper employee training is crucial. Whether producing a value package more closely
resembling a service or a good, these employees need training to consistently perform within
specifications, and to adequately self-inspect their work to understand whether it is acceptable
before it is released to the customer, who may or may not be present for the production and
delivery processes.

Increasing the degree of simultaneousness limits the operations manager’s options in
terms of quality control approaches. When simultaneousness is low, the manager can use
product control, process control, and employees’ self-control (normally a combination of them).
The more simultaneous the production and consumption are, the less the manager can use
product control (inspection).

Increased degree of difficulty in assess performance creates the need for more
sophisticated performance measurement approaches that can encompass assessing “softer”
aspects such as relationship, trust, responsiveness, and cooperation. A conscious decision must
be made regarding what needs to be measured, and how to develop measurements that are
meaningful and cost beneficial. There may also be a need to create mechanisms that help
customers’ assess the performance they perceive in ways that are meaningful to the customer.

It seems that the complexity of the operations manager’s task increases as the area
defined by the value package in the prism increases – in other words, in situations where the
position of the points that describe the value package in the prism are more distant from the
origin. In some instances, the operations manager loses management options, such as end
product quality inspection. In other instances, the operations manager must deal with more
complexity in processes, such as customer interaction, performance assessment and flexibility.
To deal with the capacity issue, a business might add personnel during peak times, or train
personnel in other areas to answer the phones during peak times. In addition, to improve demand

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management, there might be an automated answering system that provides standard information
such as the operating hours, mailing address, and process for making a change, or refers
customers to a website. This can channel the remaining unique interactions to customer service
representatives. Dealing with the customer one-on-one requires a high level of flexibility, so
again, training and interpersonal skills are important. Figure 1 shows some process options
related to different value packages in the Value Package Prism.

The proposed framework has broad potential application. It moves operations managers
away from the mindset of the services-goods dichotomy, which, while interesting conceptually,
is less useful in practice and research in a value package world.

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