Operations Decision Making - Essay Example

 Introduction Tourism is regarded to be one of the world’s most substantial and most rapidly expanding industries. However, it comprises of a host of services like travel modes, agents, hotels, transit facilities and local transportation like car rentals. It has become a global industry and without active collaboration of all players a tourist destination and its various services cannot survive. Such a combination of activities creates problems at all stages. Nevertheless the largest occurrence of problems is central to the hospitality industry which forms the fulcrum of the entire tourism industry. The reason is this is where the customer resides, relaxes and plans his forays into whatever interest he has come to explore or to satisfy. The services at the hospitality centre are always under pressure to serve this customer to his satisfaction and managers are continuously tested for problem occurrence and solutions. Decision making thus becomes an integral part of their functions and this requires both strategy as well as system support to conclude each event or episode. Since the satisfaction of the customer is the ultimate objective, decisions making revolves around it. In this global context, diverse but mutually dependent activities necessitate companies to make effective and efficient application of information technologies and communications systems. Within the hospitality industry, it is even more pronounced. The necessity to set up better distribution networks is essential as an enabler of final service to the customer. Erstwhile principles such as location are not enough in drawing the demanding and advanced consumers of today. Hospitality Management is beset with problems similar to those in a product offering company. The product in this case is the service that is more immediate and personal; hence inundated with operational problems that require instant solutions. The key resource in any business is the domain knowledge that it possesses and it is the use of this knowledge that helps in decision making the goal of which must be customer satisfaction. Decisions In contemporary hospitality systems delivery of service demands certain systems to be in place to ensure a satisfactory level of service at all stages. This requires deployment of systems that have been designed to ensure performance. This performance has to be measureable and needs to be measured to judge effectiveness and to improved standards of service. There are several measures that are in use and managers use these to help problem solving. The decision making process uses these systems to assess and solve problems and thereby contribute to improving the systems to maintain as well as raise standards of service. Often there are built-in checks to mitigate risks involved during the process. Decisions are governed by a few criterions like maintaining good relations with customers, offering quality service, addressing customer complaints quickly and effectively and motivating employees to deliver the best of service. Decisions in turn affect operations and assist in improving them. Various systems, including technological ones, are used to help in both decisions making by providing valuable inputs that lead to important operational decisions Literature Review A Relationships Since competitive advantage (Porter 1980) is the strategy for profitability of a firm, it becomes essential that this aspect be introduced in all activities. In a later essay Porter M.E., (1996) redefined strategy to be a combination of differently performed activities. While the activities remain the same, the approach taken to perform or enact them is the strategic decision that pays off. Relationship rests on need, trust and mutual benefit. In a seller-customer relationship need is the first step but trust is paramount. It has been stated by Gronroos (1989), Houston et al (1992) and Morgan and Hunt (1994) that it is common to find that relationship management develops around the concepts of trust, reciprocity, bonding and empathy; which are all essentially different views of the single dimension. Repetition of transactions and deals between parties also builds trust. (Ring & Van de Ven 1992).Over a period of time, confidences build up, reliability becomes apparent and as a consequence trust develops. Eventually it paves the way for developing trust based transactions. But it must be remembered that trust is fragile and one wrong result can break it. The traditional marketing concepts relying on the 7Ps of Boom and Bitner (1981), 4Cs of Kotler (1999) and 30Rs of Gummesson (1996), are no longer producing the results that were expected of them. In fact Gummesson (1994) has the audacity to say that these models were manipulative and exploitative in nature. It is increasingly understood in business that while loyalty is on the wane but it is generally desirable to retain customers and the effort to get them should not end at one transaction only. It has been suggested after research that if 5% of existing customers are retained the net present value of customers increases between 25-85%, (Ahmad and Buttle, 2001). In effect, the small percentage has a multiplier effect on sales realization. This extra value of additional sales does not represent just the direct sales to them but is also the result of cross sales of other products as well as up-gradations and other services that go along with it. (Selnes, 1995). Customer Retention (CR) has been defined as the continuation of the business relationship created between a supplier and a customer (Gerpott et al, 2001). Marketing strategies are now paying more attention to building on this relationship. From a short-term goal of a single transaction, the focus has shifted to building a long-term relationship. A new term of having a Customer Life-Cycle Value was coined by Grönroos, (1982) and was alternatively described as Time Life Value by Jackson, (1994) and Hwang et al, (2004). Customers should be evaluated by their potential spending power rather than maximizing on one single transaction entered into with them (Andersen, 2001). When value is determined in this manner it will encourage companies to give CR a prominent place in their marketing plans. It will give an entirely new perception to relationship marketing strategy as this becomes an important factor in the measurement of the potential and will be considered as a critical concern for management. This Life-Cycle has become the cornerstone of marketing strategy. It has been rightly concluded that it is less costly to retain an existing customer than to entice an entirely new one. The new marketing strategies take into consideration the method of finding and measuring customer base for its CR value. It has been suggested by DeSouza (1992) that a company should consider the following steps to measure customer retention; interview former customers, analyze complaint and service data, and identify switching barriers. Therefore the company strategy should be to develop a relationship with the customer to acquire his loyalty by offering him satisfaction. It has been widely understood that the test of successful marketing is customer satisfaction. Organisations that can increase the satisfaction level of their customers can expect profitability in the longer run (Felton 1959; Houston 1986). In fact it has been stated that satisfaction sustains loyalty (Javalgi & Moberg 1997). B Total Quality Management TQM The level of productivity that exists today is determined by the current level of knowledge embedded in workers’ skills, management techniques, tools, equipment, and software used in the business process. Productivity is a function of knowledge and skill. However growth in productivity depends on person performance as well as system performance. For achieving competitive advantage (Porter 1985) organizations adopt Performance Management techniques to realize efficiency and effectiveness. A number of organizations also implement Total Quality Management (TQM) practices to guide them through to becoming competent and successful. TQM has a preventive approach and not a detective approach to work (Walton, 1986). It is a proactive system and not a passive one and stresses on removing the deficiency rather than just locating it. Deming (1986) and Walton (1986) both state that the detective systems have serious disadvantages. Firstly they are post-facto occurrences. Secondly not all deficiencies are reported as a result the greater loss is a discontented customer who will not return. Thirdly the direct cost of deficiency detection and later correction or replacement is doubled. Fourthly the human cost by way of fear of performance and loss of pride in workmanship (service) is the greatest of all (Walton 1986). All this can be avoided by following TQM and not allowing a deficient product or service to be offered to the customer in the first place. Obviously preventions can lead to better outcomes. An important feature of TQM is that it decentralizes the process of quality control. This ensures that the final service is of the approved quality and defect free. This has brought quality control to the level of the worker in place of quality inspectors and supervisors. Fundamentally, the TQM approach is that customer satisfaction is the driving force behind work processes (Bounds & Dobbins, 1993). He sets the standards and the product/service needs to match it. TQM has also changed the structure of work and process. Earlier it was a top down approach and hierarchy prevailed. There was a vertical reporting system. TQM is a lateral system and the focus is on input, throughput and outcomes and finally the acceptance by the customer. Power play, that was a feature of bureaucracy, has been eliminated and replaced by accountability. System Factors TQM has brought into limelight the importance of system factors. Whereas previously all blame was squarely put on the worker’s shoulders, TQM made managers realize that the person performance is indeed highly dependant on the system support. The quality of co-workers and supervision, the availability and training on technology, the quality and timely availability of inputs, the layout and ambience of the workplace and above all the organizational culture all play vital roles in determining the person performance. Peter O’Connor and Eulberg (1985) have developed an eleven factor categorization of constraints that can put restrict performance; whereas Bernadin (1989) has enumerated twenty two limiting factors. Even constraints like clerical support and managers own performance have been found to be affecting performance results. Other variables in the shape of opportunity, motivation and ability have also been identified as important factors by Blumberg and Pringle (1982). There have been other empirical studies evidencing these and similar factors by different names and categories by a number of researchers and writers. (Bernardin, 1989; O'Connor, et al 1984; Steel & Mento, 1986; Steel et al, 1987). All of them concluded that system factors indeed have an important bearing on person performance. C Technology In a knowledge-based market, customer-related information and access are crucial factors to success (Cline and Rach, 1996; Cline and Blatt, 1998). These crucial factors to success are, however, attainable only through the existence of information technology and proficient, knowledgeable workforce. Only of late has the hotel industry started to proactively employ information technology in the matter of guest services. This requirement has opened up to rising competition, demands from customers, and shareholders’ shift of direction towards asset maximisation. Hotel executives customarily refused to go along with utilising information technology fearing alienation of guests. There exist, however, a turn around trend since the onset of the personal computer in the early 1980’s and the number of technology innovations thereafter. Investment by the industry on information technology is rising and the focus rests on worldwide distribution frameworks. This agenda is undoubtedly the most complicated in the area of hotel application for reasons of: complexity, instability of the information that includes structures of rate and room categories, and volume; the complex connections to external entities and the models used in the transaction pricing to pay for these entities for providing reservation services; the integration level needed with other, diverse central hotel structures such as PMS (Property Management Systems), management systems for revenue, sales and marketing, and guest historical data; and the sophistication and redundancy of technology that are needed to manage and support the overall worldwide distribution process and over a twenty-four-hours-a-day virtual market. These considerations are moreover made difficult for the necessity of global accessibility and presence, the increased requirements from guests to serve their particular needs, the guests’ inclination to survey more thoroughly their shopping preferences, and the uptrend appeal of the World Wide Web. The industry’s structure of fragmented ownership and the magnitude of mismatched technologies added to the perplexity of the situation. The objectives are to present a clear and distinct catalog such as: same information, pricings, and availability put on view to property employees, booking agents, or travel agents; real-time access, and remaining room availability to each distribution station anytime and anywhere and at the same time keeping control of hotel costs and inventory. To attain these goals, hotels certainly need sophisticated and highly capable technologies as well as high-speed information networks. The importance of worldwide distribution frameworks turns out to be deemed essential as hotels build up personalised affiliations with their guests, data storage and retrieval applications, and implementing revenue/yield management systems to optimise revenue per available room (REVPAR). D Service Failure and Service Recovery In hospitality business it is the service that can dissatisfy the customer. Here failures are more important as service is inherent and has to improve to create loyalty for the customer to return. Service failures can be internal when they are related to people who are involved directly in offering the service. This would cover the services staff, the mangers, cashiers, deliverymen and security. External failures would be more in the region of environmental like the ambience or location of various facilities. While it is impossible to avoid service failures it is possible to achieve complaint redressal or service recovery by better handling of customer complaints. It has been proven that service recovery leads to positive responses failure to do so will result in negative customer response. Research has shown that the first step is to identify the type of failures. The critical incident technique was used to categorise a service failure model. (Bitner et al 1990). This has also been generally adopted by other researchers (Kelley et al. 1993). Under this there are three types of failures. A) Service Delivery Failures Unavailable Service – example, shortage of staff, Slow Service – example, untrained staff. Other related Service – example, non-availability of rooms. B) Employee Response Failures Special Customer Needs – Explicit as in special request or Implicit as in timing of service required. Customer Preferences – as in compliance with dietary needs Customer Errors – as in assistance in change of size Other Factors – as in facility to disabled or old people C) Employee Behavior Level of Attention – like casual or intense Unusual Actions – like argumentative Cultural Norms – like respecting ethnic/racial custom Adverse Conditions – like responding in case of personal emergencies In practice many consumers do not report failure of service, instead they engage in negative behavior like word-of-mouth publicity or changing brands (TARP, 1986). As a result the company looses the opportunity to go for service recovery. Day and Landon (1976) propose that the consumer normally decides to act or not to act. When he acts he does so either publicly or privately. Public action means he will ask for redressal from the company or take legal action or complain to public/private agencies. In case of Private action he will advise others of this failure or will boycott the retailer and go elsewhere. Day (1984) had another approach. He classified the objectives of the customer complaints into three categories. Firstly, redress seeking or looking for compensatory value through legal means. Secondly, those who spread word-of-mouth negative views. Thirdly the type who personally boycotts or switches to other outlets. Singh (1988) proposed another system for classification of consumer complaints. He said dissatisfaction is shown by Voice response, Private response and Third Party response. Essentially he means seeking redress from seller, or word-of-mouth complaint or taking legal action respectively. He reclassified consumers in (Singh 1990) as Passives, Voicers, Irates and Activists. As the labels suggest the first are those who just ignore the situation, the second complain to service providers but fall short of word-of-mouth campaign, the third are highly engaged with service provider for redressal and finally the fourth who is aggressive and will go for compensation through legal means or via agencies. Often the customer status determines complaints. Those in high income brackets or with educational background or social leaders tend to speak out more when they feel wronged (Moyer, 1984; Singh, 1990). By contrast those at lower socio-economic level usually do not speak up. Empowerment of Workers It has become evident that the role of a worker has assumed great importance for enactment of above methods and practices. These individuals need something more than training and only skills cannot produce a service to the satisfaction of the customer. The new mantra is to empower the worker to induce him to increase his level of performance. Empowerment means offering flexibility to the worker. It also means power sharing, information sharing, upward problem solving, task autonomy, shaping of attitudes and self management (Wilkinson 1998). Legge (1995) views it as a promoter of trust and calls it collaboration between managers and workers. This relates to relationship between manager/worker as well as promotes motivation for improved performances. The perception of empowerment becomes meaningful only when it is perceived as an enabler by the worker. The psychological advantage is phenomenal as he perceives it as power, self-control, efficacy and competence (Psoinos and Smithson 2002). The four dimensions explained by Lee and Koh (2001) elucidate this concept further. They are meaningfulness, competence, self determination and impact and can bee seen as powerful measures to improve performance. Analysis Operational decision making in a hospitality environment is fraught with risk of service failures that can have a damaging and lasting effect. To mitigate these risks certain systems are put in place based on the inherent domain knowledge of the business and developed specifically to either achieve customer satisfaction or to engage in service recovery measures. As customer satisfaction being more primary in nature it has been found useful to employ four different methods to facilitate better service; Developing Customer Relationship; Employing TQM measures; Using Information Technology; and having a Service Recovery system. to facilitate better service. Customer Relationship Development ensures that all decisions are taken with the objective of ultimate customer satisfaction hence operations are tuned to this effect. TQM will organize the delivery of service in optimal manner to ensure that deficiencies are removed at the initial stage itself. This will mean putting systems into place prior to offering service. It becomes essential to evaluate the performance results to measure the satisfaction level achieved and thus achievable in the future. There are several measures that are adopted towards this end. Service recovery is equally important as it stops the spread of negative news and offers an opportunity to gain customer satisfaction and trust which is the basis of customer loyalty. Information Technology is the binding factor that collects and distributes the vital information that will help all the above functions and provide meaningful data to help in taking decisions based on facts and not on assumptions. Yet an important factor is performance measurement that will lead to making of better decisions and there are many ways to evaluate performances, both on individual as well as organizational level. Outcome oriented measures are most common. These are sales figures, production units and profitability. They are direct measures and all of them are heavily dependent on the system rather than the person. They reflect less on the character or the job relevant behavior of the person and more on the systems adopted by the company. But these outcome oriented measures are not really useful or correct in measuring person performance. Outcome oriented judgmental criteria. This signifies the use of judgment by a superior on the output performance of his subordinate. Some criterion may be assigned for measurement but largely it is a result of biased opinion. The only purpose it solves is objectivity (Gatewood and Field 1990) and it falls short of measuring performance. Management by Objectives (MBO) is said to be a management practice which combines tools like goal setting, participative decision making, and feedback of goal attainment in determining performance outcomes . The purpose of MBO is evaluation of individual performance (Bernardin & Beatty, 1984; Bretz & Milkovich, 1989). But this is basically a subjective judgment through appraisal and a study of work outcomes measured against selected criteria. There is criticism from Kane and Freeman (1986, 1987) who argue that combining MBO with performance appraisal is in fact counterproductive as it fails to give weightage to other factors beyond the control of the worker. Behaviorally oriented judgmental measures are used by superiors to determine performance ratings based on behaviors, rather than on abilities or on outcomes. The principal justification for this method is that ratings are based on the activity which is both under individual control as well as job-relevant. Under this procedure classification is made through use of behaviorally anchored rating scales (BARS), behavioral expectation scales (BES), and behavioral observation scales (BOS). The intention is to project that behavior is primarily job-relevant. But this cannot mean that this is the result of the individual’s role in the job. A job-relevant behavior is a mix of both the job as well as the system factors. The ability needs to be matched with availability and suitability of systems factors. A mismatch will certainly affect performance. Besides the role of both supervisors and co-workers, representing their behavior, is relevant and cannot be ignored. Appraisal in isolation will be faulty and may result in faulty ratings. The output is usually dependant on performance input of others as well; hence this rating will not accurately measure the individual’s performance. These measures have therefore been criticized principally for being poor measures of performance for two reasons (Cardy & Krystofiak, 1991). The first is that the behavior being measured is not exactly job-relevant and secondly because the individual employee may be negatively correlated with more important measures of job success. The first case will be of a cook spending idle time at a job where system has failed to provide the support like raw material or where a breakdown in appliances has stopped work. The second will be of a cleaning woman with poor record who is forced to offer deficient service due to non-availability of say fresh sheets. In both cases the performance of the worker is assessed adversely under this measure. Group Oriented Performance Measures. The focus here shifts to a group of workers who have to combine their efforts and where it is difficult to rate singular efforts for group outcomes. This measure also takes the system factors into account while measuring output performance. But the danger in this case is that system factors may dominate and affect team performance. Consequently team performance measures could be affected by system factors. Therefore even when evaluations are carried out at the team level or when profit sharing is required to be determined the system factors may taint performance measures (Milkovich & Newman, 1993). But one advantage of team level evaluations is empowerment, where teams are allowed to change the restricting system factors to alter the ratio in their favour. Despite shortcomings, performance measurement leads to decision making and the balancing act would be through empowerment. The new work environment and work ethics need to give back some planning and decision making power back to the worker. This is the real way he can be motivated to perform better. This need is understood as the new methods of work need more skilled worker and such skills need planning and decisions even at the execution stage. While it has been proclaimed that empowerment is good there are some fundamental issues that will have to be dealt with first. Every organisation has some method of working called the culture of the organisation. This may be defined and planned or may come about through practices adopted over a period of time. This is an influential factor on the level and degree of empowerment. The individual worker has to fit in the organisation’s cultural pattern and the empowerment has to be within its confines. This becomes apparent when service recovery problems arise. Service recovery has been subject of serious debate. This is part of the marketing plan devised by managements to ensure customer satisfaction. Most customers expect things to go wrong and therefore a failure of the product or service is not something that they will worry about. The main cause of concern is the lackluster response or even worse, no response at all to their claim. This is the result of finding from 700 reported cases that was conducted by Bitner et al., in 1990. They deduced from their finding that following measures will be useful for an organisation in the process of service recovery. First the problem must be acknowledged and not avoided. Secondly an explanation must be made to satisfy the customer. Thirdly an apology should be forthcoming wherever it is appropriate. Finally compensation in any acceptable way, even if it is just an offer of a free drink, is a necessity to restore goodwill. It has been established that dissatisfaction is indeed a result of lack of proper response and leads to enlarged problems. Conclusions It has been concluded in many quarters that information technology is the most vital factor today in offering better services due to the global nature of operations. But there is more to running a successful tourism business, especially the hospitality part of it, than just having good or even superior technology. The technology certainly provides support through correct, up to date and objective information distribution but decision making needs strategies and methods that will ensure that the customer will be satisfied with the service offered; that he will be induced to return and finally that he will become a goodwill ambassador in recommending the service to friends and family. The decision making tools are the various systems that the company employs towards the goal of customer satisfaction and retention. They have been described as TQM for ensuring acceptable quality of service delivery and service recovery procedures that offer redressal to offset negativity. Both are knowledge based systems and are driven by the domain knowledge that provides the standards and benchmarking in both cases. To further the cause and to make it useful, information technology aides are used in abundant measure to guide these services. Customer relationship is a functional method and for ages it has been established that good relations develop rapport and continuity of business. This has now been taken to new heights and has evolved into an art and science as the world has now become a global village and tourism has become more of a habit than a curiosity. A judicious use of all these systems and measures that are complimentary to each other will make operational decisions easier and more meaningful for the hospitality industry. The applicability will however vary at each establishment influenced by their organisational culture. Bibliography Ahmad, R., Buttle, F. (2001), “Retaining business customers through adaptation and bonding: a case study of HDoX”, Journal of Business and Industrial Marketing, Vol 16, No 7, pp. 553-573 Andersen, P.H. (2001), “A foot in the door: Relationship Marketing Efforts Towards Transaction Oriented Customers”, Journal of Market-Focused Management, 5, PP 01-108 Bernardin, H. J. (1989). 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