|Type of paper:||Essay|
|Categories:||Strategic management Business management Customer service|
The majority of the service business managers contend that strategic management often differs from the manufacturing business. Therefore, this paper addresses differences between a pure service business and product-oriented business. It also summarises the reason why these two sets of companies require different strategic thinking. By definition, the genuine service business is a type of business that only offer services as their primary entity. However, every form of business sells a certain level of service (Levitt, 1972).
Any top manager must ask herself or himself strategic questions as a means of understanding strategic management. The first question that managers should ask is whether they know the nature of the service business they are offering. Understanding the kind of service business help managers to gain awareness about their companies, as well as the appropriate strategic dimensions. The second management question that managers should strive to address is how they can protect their businesses from potential competitors. Managers must carefully analyze their business economics. The managers must provide relevant technology and operate within economies of scale (Thomas, 1978). The third question deals with ways of obtaining cost-effective operations. Unlike manufacturing companies that improve their operation advantage using reliable machinery, service business need better and more elaborate methods. The fourth strategic management question is the pricing strategy rationale. Pricing is everything, and a manager must strike a balance between cost-based pricing and value-based pricing (Thomas, 1978). The fifth question touches on the processes that an organization employ in developing and testing the new services. It means that the approaches adopted by any organization must recognize factors such as durability of the service together with the service abstract. The sixth question that managers should find necessary to address is the relevance of acquisition. In a service business, the acquisition is always not good for business (Thomas, 1978).
The physical reality of a product is an essential factor when it comes to product-oriented business. However, it is not the case for service-oriented businesses. As a result, it is always challenging to describe service business to an individual who has no history with the service business. One way to describe a service business success is to explain it as if it was a product. Majority of the service business such as banks, allocate large amounts of resources towards new product development. However, the process of describing a service business is complicated because it requires mental imaging that is even very challenging to communicate verbally.
Consequently, it is almost impossible to come up with innovative approaches to manage a service business (Sasser, 1976). Capital is the main barrier that controls competition in a product-oriented business. Well-established product businesses can take advantage of economies of scale to overcome competition. Service businesses lack the luxury of fending off competition through economies of scale. It is because service businesses are perishable, abstract, and offered by a single e company. Besides, the location of the company is critical because it can serve as a barrier to entry (Thomas, 1978).
Service businesses can also enjoy economies of scale. Majority of equipment based service businesses are reaping the rewards of economies of scale. Another service business boasting of enjoying economies of scale is multiple unit motion picture theatre: economies of scale help in reducing the operation cost that translates to higher profit margin. Only more prominent service companies have the opportunities of enjoying economies of scale. Therefore, economies of scale is another barrier to entry (Sasser, 1979). This s another barrier to entry in a service business. Proprietary technology mainly affects professional services such as the case of Boston Consulting Group. The group came up with both marketing segmentation as well as portfolio analysis (Sasser, 1979). Service differentiation is another barrier to entry. In product-oriented companies, the products become the company brand name, just like the case of Coke.
In contrast, Service Companies find it challenging to develop brand name identification. However, service companies are good at providing top quality services (Sasser, 1979). Just like any other form of business, service businesses can also experience operating advantage. Operation advantage occurs when an organization experiences a reduction of relative cost per unit. One of the methods of cutting cost in a service business is to substitute capital for labour. Other service companies employ workers who can perform multiple tasks (Levitt, 1972).
Value engineering involves redesigning the manufacturing process to reduce the cost without compromising the utility of the product. The same can be applied to the service business by reevaluating the parts that can be modified or eliminated to reduce the cost (Sasser, 1979). Unlike in the case of product-oriented companies, service-oriented companies lack variables of determining the cost per unit of a given service. Therefore, the pricing in service companies is based on value but not production cost. Therefore, prices are mostly too low that disadvantage the service companies. Moreover, the lack of standard pricing parameters makes it difficult for small service companies to compete and survive. As compared to the product-oriented companies, acquisition of a service-oriented company is more natural. However, acquiring a service-based business is very risky (Thomas, 1978).
In conclusion, product-oriented businesses have dominated the business world for a very long time. Therefore, the majority of the managers are only knowledgeable about strategic managerial skills associated with product-oriented businesses. It implies that managers have little knowledge of how to strategically manage and succeed in a service-oriented business. Consequently, for managers to excel in a service-oriented business, they must talk and think in terms of services.
Levitt, T., (1972). Production line approach to service. Retrieved May 26, 2019, from https://hbr.org/1972/09/production-line-approach-to-service
Sasser, W. E., (1976). Match supply and demand in service industries. Retrieved May 26, 2019, from https://hbr.org/1976/11/match-supply-and-demand-in-service-industries
Thomas, D. E., (1978). The strategy is different in service businesses. Retrieved from https://hbr.org/1978/07/strategy-is-different-in-service-businesses
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