Cutting corners and working overtime: Quality erosion in the service industry
R. Oliva and J. D. Sterman (2001) Cutting corners and working overtime: Quality erosion in the service industry.Management Science, 47, 894-914.
DOI: http://doi.org/10.1287/mnsc.47.7.894.9807
Abstract
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 1997 to 67.7, down nine percentage points from its 1994 value. We hypothesize that the characteristics of services Ð inseparability, intangibility, and labor intensity Ð interact with management practices to bias service providers to reduce the level of service they deliver, often locking entire industries into a vicious cycle of eroding service standards. To explore this proposition we developed a formal model that integrates the structural elements of service delivery. We used econometric estimation, interviews, observations, and archival data to calibrate the model for a consumer lending service center in a major UK bank. 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.