Learning objectives

After studying this chapter, readers will be able to:

• distinguish between traditional approaches to strategy and more recent strategic management models

• appreciate the conceptual logic underpinning strategic management models

• grasp the relationship between an integrated strategic management perspective and the management of the practical operational, financial, marketing and human resource management aspects of service

• explore and explain the blurring of the traditional boundaries between goods and services

• understand why a more comprehensive and integrated approach to strategic management is now required in order to design and sustain competitive advantage towards service

• analyse a selection of specific service case examples from a strategic management perspective.

Introduction

The previous chapters explored the growing importance and distinctive characteristics of service and the various challenges involved in managing it. They analysed the global, regional, national and local environments within which service is provided, and discussed the complex and dynamic nature of stakeholder management issues that now impact upon organisations as they place greater emphasis upon service. This chapter focuses on the conceptual aspects and practical implementation implications of a strategic management approach to service. In doing so, it also discusses the critical importance of taking a strategic management perspective in applying the integrated services management model. The ideas presented in this chapter provide a foundation for the subsequent chapters, which in turn analyse the specific issues associated with the marketing, operational, financial, and HR management (HRM) dimensions of the ISM.

A wave of change

Services have emerged as the most important sector in many economies in recent times. The critical economic importance of services was highlighted by the political ‘storm’ over the export of service jobs from the United States and Australia to locations such as India and Sri Lanka, and this trend is set to escalate to other developed countries.

Overall, the shift of employment away from manufacturing to services requires managerial principles and practices to be reconsidered in terms of new conceptual frameworks. That is, the historical manufacturing paradigm has traditionally focused on goods, technology and marketing, whereas the services paradigm is rooted in the ideas of partnership, communication and value creation. These contrasting paradigms emphasise very different managerial priorities, although it is becoming clear that there is a considerable and increasing influence of both paradigms in both industry sectors. It is clear that 21st-century management thinking needs to be redefined in terms of the value creation and relationship-oriented services paradigm, since in an interconnected global context most contemporary businesses today have a very strong services component.

The holistic perspective

The preceding chapters explain, explore and argue a strong case for the application of the integrated services management model. The historical transition of economic activities from primary industries such as agriculture and mining, to secondary industries such as manufacturing and construction, has seen a revolutionary change in the development and application of late 19th-century managerial frameworks.

Learning objectives

After studying this chapter, readers will be able to:

• explain the concept of ‘stakeholder theory’ and describe the range of possible stakeholders

• understand the applications of stakeholder theory to a variety of services

• appreciate the relationships between stakeholder theory and the quality movement in the management of services

• understand the roles of managers when servicing stakeholders

• appreciate the role of ethics and social responsibility when managing stakeholder interests.

Introduction

The notion that organisations have stakeholders is well established, and a great number of books and articles that address stakeholder concepts have become popular in the management literature. In spite of the availability of this material, considerable evidence demonstrates that the delineation, and treatment, of stakeholders is somewhat arbitrary (Post, 2003). This uncertainty stems from a lack of agreement on the meaning of the term ‘stake’, and subsequently, both broad and narrow definitions of the concept of ‘stakeholder’ have been offered (Donaldson and Preston, 1995). The lack of a consistent definition means that the classification of stakeholders, the interpretation of their relationships, and ideas about how an organisation might respond to the influence and interests of stakeholders becomes problematic (Hummels, 1998). The vagueness of concept and effect is highlighted in the way a bank's board of directors endeavours to address the varied, and sometimes contrary, interests of the bank's stakeholders.

Learning objectives

After studying this chapter, readers will be able to:

• explain the concepts of human resource management, strategic human resource management and industrial relations

• appreciate the linkages between HRM, marketing, financial and operational management

• discuss the major internal and external labour market issues in the services sector

• understand the relevance of such HRM functions as HR planning, job design, recruitment and selection, human resource development, performance management, remuneration and career development to the services sector

• appreciate the special needs of employees in services.

Introduction

Earlier chapters of this text emphasise that the primary distinguishing feature of services is the nature of their customer relationships. This distinguishing feature is described as the ‘service encounter’, which can sometimes become the ‘moment of truth’ (Carlzon, 1987) that separates one services organisation from its competitors. Despite the particular services or products offered, organisational size, structure, or use of various technologies, the defining element of the services sector lies in its delivery systems. These delivery systems are ultimately reflective of the quality and management of the sector's employees. Thus, financial institutions, hospitals, airlines, legal offices, funeral homes, restaurants, hotels, IT and recreational services, all depend to different degrees on the capacities and skills of the people they employ.

As the other chapters indicate, service delivery systems are of course also reliant on appropriate marketing and financial systems, supported by efficient and effective operational processes.

Learning objectives

After studying this chapter, readers will be able to:

• appreciate the importance of financial management

• understand the underlying principles and concepts of financial management

• discuss the financial manager's responsibilities

• explain some of the main financial management objectives and concepts

• identify some of the key functions of financial management (for example, financial analysis, planning, control and sourcing for funds), and analyse each function from a services perspective

• apply a selection of financial management techniques to the services environment (for example, activity-based costing, financial risk management)

• examine contemporary issues in financial management of services.

Introduction

This chapter highlights the underlying principles and contemporary importance of financial management with particular reference to its implications for services. In general, the study of finance consists of three interconnected areas:

1. Capital and money markets, which deals with securities markets, banks and financial institutions.

2. Investments, which includes the decision making of individuals and organisations with respect to securities (shares and bonds) for their respective investment portfolios.

3. Financial management, which involves the acquisition, management and financing of resources for organisations.

The broad nature and characteristics of the global finance environment will be discussed first.

Financial management has undergone significant changes in recent years. The focus of financial management has changed dramatically from the historical emphasis on legal aspects such as mergers, acquisitions, consolidations, the formation of new organisations, and the various types of securities (shares and bonds) issued by corporations in the early 1900s.

Learning objectives

After studying this chapter, readers will be able to:

• discuss the nature, scope and significance of operations management within services

• define the concept of operations management and explain its various functions and dimensions

• explain a variety of operations management concepts and theories

• discuss the main issues and challenges associated with managing the operations of services.

Introduction

The previous chapters have presented the nature and scope of the strategic management of services. The two interdependent, but discrete, domains of management – the corporate (or strategic) domain, and the functional (or operational) domain – are both needed for the management of organisational efficiency and effectiveness, and hence survival. The special vulnerability to external pressures and influences when managing services (as discussed in Chapters 2 and 3) makes strategic management especially important (as discussed in Chapters 4 and 5). However, the management of the service delivery process (a significant component of the service ‘product’) is of equal importance. This chapter will provide an overview of services operations management in a cross-functional management context. This integrated approach to the management of services will examine the issues and challenges significant for those dealing with operations management.

The functional management domain, as discussed in Chapter 1, presents the concept of management of an organisation's marketing, operations, finances, and human resources as being significant for organisations involved in services.

The rapid rise of global services during the last few decades is without doubt one of the most challenging social, cultural, political and, especially, economic forces in almost all countries in the world. It has been the outcome of the combined influences of the decline of the more traditional agricultural and manufacturing sectors; the development of new technologies including telecommunications, information technology, nano-technology, and biotechnology; and changes in the expectations of consumers.

While in countries such as Australia, New Zealand, Malaysia, China and India services are a major economic and social influence, other regional nations are (to varying degrees) dependent on them for their very survival. In Singapore, for example, the absence of physical resources and disproportionately high education levels has ensured the economic dominance of services, and Thailand's tourism sector has long exceeded rice production as an export income earner.

The multifaceted nature of services has spawned a broad range of opportunities and challenges for their strategic management, including the delineation of their parameters; analyses of their broad global contexts; determination of their ‘stakeholders’; the definition and quantification of ‘service’ dimensions, qualities and measures; and the applications of all of these issues to their integrated management functions, including marketing, operations, financial and human resource management.

Learning objectives

After studying this chapter, readers will be able to:

• understand the composition of global trade in services and its impact on developing countries and trade regulations

• appreciate the meaning of globalisation for services, its drivers and future trends

• explain the impact of regionalism on services

• analyse the impact of issues in the national environment for service providers.

Introduction

The previous chapter discussed the significance and characteristics of services, and the need for an integrated services management model that incorporates a holistic approach in addressing its management complexities. This chapter discusses the diverse ways in which the macro and micro context, or environmental context, impacts on the dynamics and characteristics of service activities. In a sense, there is no significant difference between the environments in which services are delivered, and goods are manufactured and marketed. At the same time, the different nature of services justifies the argument that the services environment is considerably different. This chapter discusses how the environment contributes to the macro and micro challenges and opportunities that service providers now face. At the macro environmental level of trade in services, the impact of globalisation is discussed, together with the impact and realities of regionalisation. At the micro environmental level, the influences and impacts of national and country issues for services are also presented. Key aspects of the national environment considered include the political, economic, legal, technological, competitive and societal spheres, and how these various aspects contribute to the risk environment.

Learning objectives

After studying this chapter, readers will be able to:

• discuss the overall global significance of services

• explain the concept, nature and structure of services

• understand management concepts and theories

• discuss the main issues associated with the strategic management of services.

Introduction

There are many texts that focus on the strategies, plans and operational functions associated with the management of particular industries and organisations. Others explore the application of management concepts in industry sectors such as agriculture and manufacturing, or analyse services from operational or marketing perspectives. However, few books have attempted to examine global services from a strategic management perspective, which combines all management functions within an integrated approach. The reasons for this neglect reflect the complex nature of services, their unclear boundaries and shifting structures, their ‘intangible’ outputs, the perceived social and economic significance of services, and their inherent resistance to the direct transfer of manufacturing models of management.

However, services can no longer be ignored, nor their proper management responsibilities be abrogated, due to their primacy in the economies of all developed, and most developing, countries in the world. It is apparent that there is a need for the development of a strategic management approach for this important sector of the global economy. Services have now supplanted both the primary (agriculture, mining) and the secondary (manufacturing) economic sectors, as a predominant tertiary sector.

Learning objectives

After studying this chapter, readers will be able to:

• discuss the different interpretations of marketing in relation to the evolution of management and marketing discourse, and the relationship between a holistic strategic business management philosophy and an integrated conceptualisation of marketing

• appreciate the role of cross-function management and employees' systemic strategic thinking as critical management tools with which to successfully institutionalise a process-oriented organisational perspective and enable the holistic implementation of the marketing concept

• explain the relationship between integrated marketing and total quality management

• describe the contextual background behind the emergence of services marketing and management, and discuss the new relationship marketing paradigm and its associated challenges

• understand different contributions of total quality management and business process reengineering to strategic business management thinking and practice

• define the new role for the marketing department

• discuss the criticality of effective management of customer and market information and knowledge for the successful implementation of the marketing concept and strategic business management.

Introduction

The previous chapter highlighted some of the key strategic management challenges now faced by many organisations in the context of the growing importance of marketing services, or the servitisation of businesses (see Vandermerwe and Rada, 1988). The extensive illustrative case-based discussion underscored how business success in services is determined by the quality of a range of strategic management decisions and actions made in relation to both the external and internal organisational environment.