New Study Weighs Quality vs. Speed in Services Industry

SALT LAKE CITY—For an increasingly complex and nuanced services industry, success depends on finding the right balance between quality and speed, individual attention and customer volume, a University of Utah researcher has found.

“In our view, in a service economy the interesting stuff happens only when service quality interacts with the time taken by the service-provider to serve the customer. This must be true for all the complex services provided in the modern world”

Nowhere is that corporate high-wire act more painfully apparent than in what Krishnan S. Anand, a David Eccles School of Business professor, calls “customer-intensive services.” Such enterprises – ranging from healthcare, education, legal and financial consulting to health clubs and beauty salons – thrive or fail depending on how well they finesse the interaction of quality and speed of their services.

In his paper, “Quality-Speed Conundrum: Trade-offs in Customer-Intensive Services,” Anand and co-authors M. Fazıl Pac and Senthil Veeraraghavan of the University of Pennsylvania’s Wharton School explore the pitfalls – and potential rewards – of realizing that ultimately, quality of care and time spent with individual customers are the foundation for long-term success and growth for any client-centered enterprise.

Anand writes that “customer intensity of the service is a critical driver” in defining and implementing all segments of such businesses, and yet misunderstanding, even ignorance of that truth is crippling profits. Over the past decade, studies show that the healthcare industry has actually retreated 0.4 percent in annual productivity growth. For example, doctors, pressured by increasing demands for their services, must rush between patients with the result that individual attention – and patients’ perception of service quality – has diminished.

While such developments have spurred competition by multiplying providers within healthcare and other customer-intensive services, Anand and his colleagues found that competition does not necessarily result in lower costs, contrary to what has been experienced by other industries.

“In fact, we found that under competition, the service becomes slower and the price charged to customers increases. That competition is not producing lower costs is a paradox to the extent that our instinctive, and perhaps inappropriate, focus is on costs – but there are several other dimensions” that must be considered in the services sector, Anand said.

“In our view, in a service economy the interesting stuff happens only when service quality interacts with the time taken by the service-provider to serve the customer. This must be true for all the complex services provided in the modern world,” he added.

The paper was published in the January edition of Management Science, recognized as the premier scholarly journal publishing scientific research on the practice of management. You can access the full text by pointing your Internet browser to: http://mansci.journal.informs.org/cgi/content/abstract/57/1/40.