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The differences between manufacturing and service organisations

This essay will briefly describe the development of services thinking within the Operations Management paradigm. The discussion will subsequently identify differences between manufacturing and service organisations. The first part of the discussion will draw to a close with a brief mention of hybrid manufacturing/service organisations.

The second part of the essay will outline the unique challenges involved in marketing and managing services, borrowing from the academic literature belonging to the field of service marketing. The key characteristics that derive the unique challenges in marketing and managing services will be described and suggestions that ameliorate these challenges will be brought into the discussion. The conversation will be brought to a close with a short review of the field of service marketing, reflecting upon the role of the key service characteristics.

Johnston (2005) describes the evolution of services thinking through three stages encompassing a period including the 1980s and 1990s. Conventional wisdom began to embrace a distinct role for services within an Operations management paradigm in the 1980s (Johnston, 2005: 1278). Early academic efforts were restricted to the description of services juxtaposed with manufacturing in an attempt to confirm the importance of services and promote theory building (Johnston, 2005: 1280-1281). Having established the role of services within the field of Operations Management, academics focused upon theory development and empirical testing (Johnston, 2005: 1281-1285).

Debate surrounding the emerging role of services within the field of Operations management will have inevitably produced contradictions. Perceptions of the differences between manufacturing and service organisations varied from no discernible differences (Lawrence, 1989) to rigid dichotomies based upon types of organisational behaviour and characteristic outputs (McDonald, 1994: 6; Troy and Schein, 1995).

McDonald (1994) describes the theoretical differences between manufacturing and service organisations from internal organisational and output perspectives.

The distinction between the two types of organisation based upon differences in internal organisational arrangements focuses upon the transformation process, employee skills/knowledge and the status of results (see Table (1) below).

Table (1): Internal Contrasts between Manufacturing and Service

Manufacturing Service
  • Production is capital- or equipment-oriented
  • Technical skills dominate
  • Training will dominate
  • Production results are variable
  • Production is people-oriented
  • Interpersonal skills dominate
  • Education will dominate
  • Service results are subject to more variation

(McDonald, 1994: 6)

McDonald’s (1994: 6) theoretical comparison of the output of the two types of organisation further develops the notion of two separate operational systems (see Table (2) below).

Table (2): Differences between products and services

Product Service
The customer receives a tangible product in the form of goods which can be seen and touched The customer receives an intangible service, which may or may not satisfy
The goods remain with the customer Services are consumed at the moment of delivery
The production and delivery of goods are usually separated Production, delivery and consumption of services are often at the same time
Few producers deal with customers Most producers deal with customers
The customer is rarely involved with production The customer is often closely involved with production
Goods can be serviced Services have already been consumed and cannot be serviced
Goods are subject to liability, but the producer has more opportunity to ameliorate the effect on the customer and this the financial penalty Services which do not meet the requirements are difficult to replace – the financial impact is usually total
Goods can be purchased to store in inventory to satisfy the customer’s needs Services cannot be stored, but must be available on customer demand
Goods can be transported to the point of sale Some services are transportable (e.g. information through communication lines) but most require the transportation of the service provider
The quality of goods is relatively easy for customer’s to evaluate The quality of services is more dependent on subjective perception and expectation
Goods are often technically complex – the customer therefore feels more reliant on the producer The quality of services is more dependent on subjective perception and expectation Services appear less complex – the consumer therefore feels qualified to hassle the producer

(McDonald, 1994: 6)

The use of classification to differentiate between manufacturing and service organisations is an important academic activity, which provides a basis for theory development and empirical testing. Despite the utility of typologies, they can easily be misinterpreted by practitioners and more importantly, misrepresented by academics. A typology is not intended to represent an empirical reality, but rather an ideal reality that serves as a basis for the investigation and description of empirical reality. The danger occurs in any field of study when a theoretical ideal is misrepresented as a generalised empirical fact, which is essentially the problem of reification.

Contemporary studies of manufacturing and service organisations broach the discussion of organisations that combine product and service offerings (Gebauer et al, 2008 and Martinez et al., 2010).

Gebauer et al. (2008: 219-220) provide insight into how manufacturers experiencing difficult competitive conditions could exploit services to sell more products, achieve differentiation of their product portfolio and increase the likelihood of higher and more stable financial returns.

Martinez et al. (2010: 450) claim that there is an increasing tendency for manufacturing companies to integrate product and service offerings rather than focus exclusively on products. Their argument is based upon the assertion that manufacturing systems are relatively easy for competitors to imitate and that there is increasing evidence that manufacturers are integrating their products with services to achieve sustainable competitive advantage.

Although the emergence of service thinking within the Operations management paradigm was based upon a dichotomous view of manufacturing and service organisations, a trichotomy that includes mixed manufacturing/service organisations more accurately reflects the spectrum of modern organisational configurations.

The preceding paragraphs discussed the theoretical emergence of the service organisation. Management Discourse is dominated by theoretical polarities, which focus upon perceived differences between manufacturing and service organisations. These differences stem from the characteristics of their respective outputs. The unique challenges faced by service organisations in the marketing and management of their offering has been discussed by numerous academic studies. The extant theoretical hegemony in the academic literature propounds the view that the challenges posed by service offerings originate in their four principal characteristics (Ojanen et al, 2009; Tuzovic, 2009; Moeller, 2010; Jaaskelainen et al, 2012):

Intangibility – services do not exist in material form and deny the customer any physical interaction. This is a challenge for marketing, because without an object that can appeal to our senses, “…customer risk perceptions are increased and quality is more difficult to assess than for manufactured goods (Winsted and Patterson, 1998: 295).” According to Awara and Anyadighibe (2014: 35), “Intangibility, is the critical goods-services distinction from which all other differences emerge”;

Heterogeneity – a large number of service offerings have a high degree of human input, which creates managerial challenges in the achievement of a uniform, repeatable customer experience (Awara and Anyadighibe, 2014: 35 and Winsted and Patterson, 1998: 295);

Inseparability – the nature of service transactions often demands the presence and interaction of the customer. Following Awara and Anyadighibe (2014: 35), it is “…simultaneous production and consumption which characterises most services.” The proximity of the customer makes the production of services highly interactive, demanding high levels of service customisation and tailored marketing (Winsted and Patterson, 1998: 295);

Perishability – services cannot be stored, which can lead to difficulties in balancing supply with demand (Awara and Anyadighibe, 2014: 35).

The four basic service characteristics outlined above are commonly referred to as IHIP characteristics in the service marketing literature and the roots of their existence go back as far as the 1970s (Parasuraman et al, 1985; Groonroos and Ravald, 2011).

In response to the unique challenges represented by the IHIP characteristics, Booms and Bitner (1981) in Awara and Anyadighibe (2014: 36) recommended that the 4Ps marketing mix (Product, Place, Pricing and Promotion) be extended to include:

People – “…all people directly or indirectly involved in the consumption of a service…”(Awara and Anyadighibe, 2014: 36);

Physical evidence – “…the environment in which the service is assembled and in which the seller and customer interact, combined with tangible commodities that facilitate performance or communication of the service.”(Awara and Anyadighibe, 2014: 36); and

Process – “…procedures, mechanisms and flow of activities by which the service is delivered…”(Awara and Anyadighibe, 2014: 36).

In addition to the service marketing mix, Awara and Anyadighibe (2014: 37) describe criteria that could be used as bases for a differentiated service offering: Offer; Delivery; Image; Service Quality.

IHIP characteristics are generally treated axiomatically within the management discourse and a lack of critical reflection upon their contribution to knowledge is probably indicative of the hegemony of epistemological dogma (Hultman and Ek, 2011). Nevertheless, there are signs of interest in critically re-evaluating service marketing and management as a field of study.

Moeller (2010) identifies the lack of critical treatment applied to the IHIP characteristics. However, instead of dispensing with IHIP and investigating the possibility of new characteristics, the study focuses upon the re-evaluation of IHIP through the lens of the FTU (Facilities/Transformation/Usage) framework (Moeller, 2010: 360-361). The FTU framework is employed to dismantle IHIP and apply it to different aspects of a service offering (Moeller, 2010: 365). The study claims to reveal the applicability of components of IHIP in their service context rather than the use of IHIP as representative of service marketing per se (Moeller, 2010: 365). However, the ability of Moeller (2010) to take a reification (IHIP), break it down into components and claim that it is more relevant in its component parts or groups of those component parts is inconsistent. The characteristics coupled with theoretical aspects of service do not escape the problem of IHIP applied as a single entity.

Hultman and Ek (2011) critically evaluate the philosophical underpinnings of the field of service marketing. An important part of their discussion is the inclusion of social philosophy in an evolving discourse to describe service marketing as an essentially social process. The IHIP characteristics are subjected to criticism and reduced to an irrelevance (Hultman and Elk, 2011: 173). The authors agree with the critics of IHIP, asserting that they “…find these descriptors impossible to use for defining services and explaining the difference between services and goods.”(Hultman and Elk, 2011: 173). They also resist the current tendency in the field of service marketing to replace one paradigmatic cage with another, their project being occupied with the broadening of the study of service marketing rather than its continued limitation.

The ability of Hultman and Elk (2011) to realise the ambition of opening up the field of service marketing would depend upon the willingness and ability of incumbent researchers to embrace the project. An increase in interest shown in the field by critical management theorists would also have the affect sought by the authors.

The two studies used to demonstrate critical contributions to the field of service marketing originate from different epistemological beliefs, but they both achieve similar results. Although Moeller (2010) did not intend to undermine IHIP characteristics, it achieved this end almost as successfully as Hultman and Elk’s (2011) dismantling of IHIP characteristics. As the traditional view contained in the field of service marketing would suggest that the unique challenges in marketing and managing services derive from IHIP characteristics, has the invalidation of IHIP characteristics left the essay question unanswered? Conventional wisdom from service marketing would probably respond no, the question has been answered from the stock of knowledge. Whereas opponents of the conventional wisdom would probably argue that the field has never possessed the ability to effectively answer the question.

This essay has outlined the differences between manufacturing and service organisations against the backdrop of service theory development in the field of Operations management. A representation of manufacturing and service organisations as polar opposites, typical of the conventional wisdom in Operations Management, was provided. The portrayal of manufacturing and service organisations was extended through the discussion of mixed manufacturing/service organisations, encouraging the creation of a trichotomy to more effectively depict theoretical types.

The unique challenges in marketing and managing services were discussed with the support of evidence from the field of service marketing. The IHIP characteristics of services were introduced and suggestions for handling marketing and managing challenges derived from the IHIP characteristics were included. Critical contributions to the field of service marketing were summarised for the purpose of developing the discussion of IHIP characteristics and their relevance.


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