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of TOC in these areas has produced dramatic results, as the chapters in this section will show. These chapters feature the use of Critical Chain, Buffer Management, and the TOC Thinking Processes explained in earlier sections to great effect in services environments. Services impact on company revenue and profit is challenged by shortened product life cycles, and increasing process and product complexity. TOC methods help ensure that services actions flow in a manner to support escalating demand for services while at the same time retaining financial viability for services within the business.

CHAPTER 28

Services Management

Boaz Ronen and Shimeon Pass

Introduction

Service organizations usually strive to excel in the professional or technical aspects of the services they provide to customers. However, managerial improvements have a huge potential for enhancing shareholders’ value of the typical service organization. In this chapter, value enhancement will be the main criterion for examining the potential and importance of the traditional versus the more modern managerial concepts and tools. In business organizations, the firm’s value is defined as the discounted cash flow (Ronen and Pass, 2008a). In non-profit organizations, the goal is to increase the relevant performance measures versus the organization’s goal (Ronen et al., 2006).

In order to improve the performance and value of an organization, we identify its main value drivers (Ronen and Pass, 2008a, Chapter 19). A value driver is any important factor that significantly affects the value of the firm. The potential value drivers are identified by a focused review and analysis of the organization. In service organizations, typical value drivers are increasing sales Throughput, increasing information technology (IT) Throughput, reducing lead times, and changing measures of performance.

The scope of our discussion on Service Management covers organizations such as:

Banks (Ronen and Pass, 2007)

Insurance companies (Eden and Ronen, 2007)

Cellular phone operators and providers (Ronen and Pass, 2008b)

Telcos (Ronen and Pass, 2008b)

Credit card companies (Geri and Ronen, 2005)

Hospitals and health care service providers (Ronen et al., 2006)

Law courts

Professional services: law, accounting, consultation, engineering, design, IT consulting, etc. (Ronen and Pass, 2008a)

Retail companies and chains (Ronen and Pass, 2008a)

Copyright © 2010 by Boaz Ronen and Shimeon Pass.

Hospitality industry

Education (Goldratt and Weiss, 2006)

Challenges in Service Management

In the beginning of human civilization, people were struggling against the hardships of life—most of the population was involved in the production of food, housing, clothing, and defense against enemies. The advancement of civilization relieved the hardships of life, the standard of living has been elevated, and today most people provide services to other people.

Approximately 80 to 95 percent of the global workforce is employed in the service sector. The other 5 to 20 percent work in either the manufacturing or the agriculture sectors. In contrast to the high importance of the service sector to the global economy, and unlike the production sector, management practices used by the service organizations are not necessarily the state-of-the-art management practices.

From the authors’ experience in implementing Theory of Constraints (TOC) and other value-focused concepts and tools in dozens of service organizations worldwide, significant changes can be achieved quite easily for the benefit of all the service organization’s stakeholders.

This gap in the use of management practices between the production and the service sectors stem from several reasons. We will first focus on factors that make the service sector different.

What Makes Service Management Distinctive?

Service management has several unique characteristics:

The outcome of a service is not physical in its nature.

There is a large variance among service organizations (even within an industry) in terms of customers,