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Service Management Principles – Traditional Overview

May 10, 2008

Some Traditional Strategy

For a manufacturer of goods, conventional managerial thinking generally includes three rules of thumb to follow in order to strengthen the competitive edge of a firm:

  1. Decrease production and administration costs, to decrease the unit cost of products.

  2. Increase the budget for traditional marketing efforts such as advertising, sales and sales promotion in order to make the market buy the goods produced.

  3. Strengthen product development efforts.

Strategic management includes, of course, a range of other elements as well. However, in this context we will concentrate on these aspects, because understanding them correctly is crucial to managing services.

For manufacturing, these rules of thumb usually make sense, because they are geared to goods. If production costs can be decreased, lower prices can be offered, or higher margins can be obtained. The quality of the goods is the same, because the output of the production process does not change, even though different, more cost-efficient technologies or processes are used. The consumption or usage of physical goods can be characterized as outcome consumption and, regardless of the new, more effective and efficient production technologies and methods used, the outcome remains the same. Economies of scale normally pay off. Moreover, marketing efforts usually have a positive effect on demand. Continuous product development is of vital importance to manufacturing as well as to services, of course, but misunderstanding the first two rules of thumb may misguide management and cause serious problems.

An improved profit orientation is needed in services, too. However, if lessons from the manufacturing sector are followed unchanged, profits may not be as good. This is due to the different characteristics of services and service production. There is a strategic management trap, which management has to observe and avoid.

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