The key to productivity in services becomes a matter of quality as much as quantity. An examination of the literature supports the following two hypotheses:
1. Increase in Productivity may Lead to a Lowering of Service Quality: Raising productivity nearly always leads to hanging changes in the way the service is provided, and such changes may affect actual and potential customers’ perceptions of the service being offered.
For example, a comparison can be made between the post office, where there are specialist clerks and service received by staff who can deal with all tasks.
In the former case, customers may have to queue several times, as compared to only once in the latter. Thus, an increase in productivity can lead to a reduced level of service for the customers.
Therefore, if an attempt to reduce the amounts of raw materials is made, this will inevitably lead to times where demand cannot be met, and service quality will be affected.
2. Increase in Service Quality may Lead to a Raised Level of Productivity: The cost of quality management can be cost-effective, which is another way of saying it leads to increased productivity.
Both are split into three: internal and external failure costs, appraisal costs, and prevention costs. The relationship between these three costs is shown in the figure below:
Internal failure costs include waste, which may be of materials or employees’ time, scrap, re-inspection, downgrading, failure analysis, etc. External costs are those incurred because the customer receives less than a quality service.
For example, in tourism services, these could include costs incurred providing upgrades or replacements or, indeed, refunds to compensate for service failure.
Appraisal costs are those associated with evaluating materials, processes, suppliers, and services to ensure that they are in conformance with specifications.
Prevention costs include those incurred in the design process, in planning and managing the process, and in the training of staff.
The underlying argument is that by trying to ensure that service is delivered according to customer requirements, the service process will be made more effective, i.e., more productive.
Crosby explains that the concept of quality is free is based on the assumption that, for most firms, an increase in prevention costs will be more than offset by a decrease in failure cost.