Ch 07

The Front-Office, Back-Office InterfaceChapter 7

Chapter 7 – The Front-Office, Back-Office Interface

Successful Service Operations Management, 2006, Thomson

2

Front-Office/Back-Office Interface

• Main concern: aligning functional and corporate service strategies – Organization:

• Introduction to misaligned strategies

• Academics

• Practitioners/Consultants

• Prescriptive model - aligning de-coupling and strategy

• Analysis of the retail bank lending market



3

Strategic Service Vision

• Service Concept definition: results provided for customers– General service concepts– Cost– Speed– Flexibility– Quality

• Service Delivery System



4

Strategic Service Vision

• Does a Service Delivery System support the intended Service Concept?– Equipment, training, policies, procedures…

Low Costs

Fee Reversal Policy

High Service

Staffing Levels

Flexibility

Systems Technology



5

Academic Literature

• Productivity– Levitt (1972) “Production-line Approach to

Service,” HBR– Levitt (1976) “The Industrialization of Service,”

HBR

• De-coupling of Front- and Back-office– Chase (1978, 1981) Customer Contact Model,

HBR, Ops. Research



6

Basic Principles of De-coupling

• Customer contact model – Richard Chase, USC• Services categorized by level of customer

contactHigh Contact Low Contact

Pure Services Mixed Services Quasi-Manufacturing(medical) (branch banks) (distribution centers)

Efficiency: f(1 – contact time/service creation time) Potential for efficiency increases as customer contact

time/service creation time decreases



7

Decoupling

• Method– Decouple high contact and low contact “service

factory” operations – Buffer low contact operations from customers

• Employ contact reduction strategies in the low-contact areas– customer contact for exceptions only– reservations/appointment systems– drop-off points (ATMs) – task standardization



8

Decoupling

• Employ contact enhancement strategies in the high-contact areas – customer-oriented layout– people-oriented contact workers– partition back office from public view



9

Managerial Differences

High Contact: Low Contact:Support Center Branch

Facility Location near the customer near supply,transportation, labor

Facility Layout customer-oriented production efficiency

Production orders cannot be smooth production planningstored with backorders

Worker Skills public interaction technical

Quality Control variable standards numerical measurement

Capacity set to peak set to averagework loadwork load



10

Two Models of Human Resource Practice

Coupled De-coupledSelection criteria Trainability College for platform

H.S. for tellers, back-office

Training emphasis Broad Immediate task customer focus focus

Compensation At or above market Above market for some, below for others

Group incentives Individual incentives Returns for longevity

Job Design Cross-training Narrow, specialized

Enhanced discretion High control for most

Part-timers For retention For cost-control



11

Practitioner Literature – “De-coupling is good.”

• Banking– Burger (1988) Bank Systems and Equipment– Cronander (1990) Texas Banking– Gilmore (1997) Real Estate Finance Journal– Pirrie, et al. (1990) Banking World– Reed (1971) “Sure It’s a Bank but I think of it as a

Factory,” Innovation



12

Practitioner Literature

• Other Services

• Government:– Connors (1986) Office

• Hospitals:– Greene (1990) Modern Healthcare

• Newspapers:– Sharp (1996) Editor & Publisher, 129(29)



13

Service Blueprint for Fast Food Restaurants

Make Patties

Grill Assemble

Counter

Line of Visibility



14

De-coupling and cost

• Does de-coupling always lower costs?

• Why does de-coupling often lead to lower costs?– De-coupling and task focus

• Frederick Taylor and Henry Ford



15

De-coupling and Rounding of Small Numbers

• 20 individual units – Each needs 0.75 of a person

• Staffing level: 1 person each, 20 total

1

1

11

…

1 central unit:

15



16

De-coupling and Variance Reduction

• 20 individual units: average day -1 person, good day -2 people

• Staffing level: 2 people each, 40 total

1 central unit

252

2

2

2

…



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Cost Problems

• Back office:– (Queuing math) centralization is good. – Bigger means less idle time, higher utilization

• Front office staffing:– Bigger is also better– Convenience strategy

• Large minimum break-even points

• Break-even based on labor reduction



18

De-coupling and Flexibility

• Bank employee moved from coupled to de-coupled job:– “The computer system is suppose to know all the

limitations, which is great because I no longer know them.”



19

De-coupling and Flexibility

• Bank manager– “As we have more and more processing in the black

box, few people know what a bank is really like. Some guys are walking encyclopedias of banking information, but they are a dying breed. Do we need people who really know all the processes? Is there a risk?”



20

De-coupling and Service Quality

Service Gaps – de-centralized service

ManagementPolicy

Customer ServiceProvider



21

De-coupling and Service Quality

ManagementPolicy

Customer

Service Gaps – centralized service

ManagementPolicy

High contact worker

Low contact worker



22

De-coupling and…

• Service Quality– Quality of conformance – decision consistency

improved– Task quality and the “Renaissance man”

• Speed– Speed of Task versus speed of Process– Task speed improved due to focus– Process speed can be worse due to hand-offs



23

De-coupling

• Benefits

– Cost (task focus, variance reduction, technology)– Service quality – conformance quality– Speed of Delivery – task speed



24

De-coupling

• Disadvantages

– Cost (increased idle time in front-office, duty overlap)

– Service quality – personal service, empathy– Speed of delivery – process speed– Flexibility



25

Back-Office Decoupling Strategies



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Management Practice Cost Leader Cheap Convenience Focused

Professionals

High Service

Level of De-coupling

High Low High Low

Competitive Advantage

Low costs Locational convenience/low cost

Personalized service at moderate cost

Premium level of personalized service

Reason to De-couple

Scale economies Maintain cost competitiveness

Quality control; disaggregation of high-and low-contact

Centralize only when it is cost prohibitive not to

Activities to De-couple

All back-office work Centralize back-office work in excess of front-office idle time

Back-office activities “regionalized,” not centralized

Activities requiring expensive capital goods

Consistent Functional Choices for Decoupling Strategies



27

Management Practice Cost Leader Cheap Convenience Focused Professionals

High Service

Operational Strategic Focus

Cost minimization; Conformance quality

Cost minimization; conformance quality

Maintain sufficient flexibility, response time, or service quality at lower cost than High Service

Maximize flexibility, response time, or service quality

High-Contact Product Line

Narrow Very narrow Broad Very broad

Training Narrow, focused on task within process, low cross-training

Broad. All employees should be able to perform each function.

Narrow, but focused on an entire process

Broad, but with specialization across functions




28


Management Practice Cost Leader Cheap Convenience Focused Professionals

High Service

High-contact Worker Responsibility

Service customer requests; Low off-site responsibilities

Service customer requests; Low off-site responsibilities

Increasing number of customers largely through off-site activity

Increasing customer relationship depth; High off-site responsibilities

High-contact Worker Compensation

Salary/hourly Salary/hourly Commission on sales Salary with commission on unit performance

Purpose of Automation Standardize activity; Labor replacement

Reduce job complexity Enhance marketing Enhance service



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Activities in Processing a Retail Loan

Line of Customer Visibility

Solicit Application

Application Processing Credit

Decision

Payment Processing Bad Debt Collection

Document Signing



30

High Service

Focused Professiona

ls

Cheap Convenien

ce

Cost Leader

Low High

Level of De-coupling

Service

Cost

Strategic Operational

Focus

Bank of Green Hills Union Planters

Nashville Bank of Comm.

First Union

Modeling Services De-coupling



31

Industry Analysis: Retail Lending in Nashville, TN

• Cost Leader:– AmSouth

– First American

– First Union (changing to focused professional)

– NationsBank

• Cheap Convenience– Nashville Bank of

Commerce

• High Service– Sun Trust– South Trust Bank of

Green Hills

• Focused Professional– Union Planters



32

• Practitioner/Academic view of De-coupling

• De-coupling as part of a coherent strategyDe-coupling Strategic Focus Classification

High de-coupling Service Focused Professional

Cost Cost Leader

Low de-coupling Service High Service

Cost Cheap Convenience

Chapter Summary

Documents

Ch 07