Cutting Corners and Working Overtime:
Quality Erosion in the Service Industry

Rogelio Oliva
Mays Business School, 325M Wehner - 4217 TAMU, College Station, TX 77843
Phone (979) 862-3744; Fax (979) 845-5653
roliva@tamu.edu

John D. Sterman
MIT, Sloan School of Management, 30 Wadsworth St, E53-351, Cambridge, MA 02142
Phone (617) 253-1951; Fax (617) 258-7579
jsterman@mit.edu


Oliva R, Sterman JD. 2001.
Cutting Corners and Working Overtime: Quality Erosion in the Service Industry.
Management Science 47(7):894-914.
Support for this research has been provided by the Inventing the Organizations of the 21st Century Initiative at the MIT Sloan School of Management and the Division of Research at the Harvard Business School.

Abstract
The erosion of service quality throughout the economy is a frequent concern in the popular press. The American Customer Satisfaction Index for services fell in 1997 to 67.7, down nine percentage points from its 1994 value. We hypothesize that the characteristics of services -- inseparability, intangibility, and labor intensity -- interact with management practices to bias service providers to reduce the level of service they deliver, often locking entire industries into a vicious cycle of eroding service standards. To explore this proposition we developed a formal model that integrates the structural elements of service delivery. We used econometric estimation, interviews, observations, and archival data to calibrate the model for a consumer lending service center in a major UK bank. We find that temporary increases in service demand interact with decision rules for capacity management, overtime, service delivery processes, and quality aspirations to yield permanent erosion of the service standards and loss of revenue. We explore policies to improve performance and implications for organizational desing in the service sector.
Download

Download the technical documentation for the model
        | HTML |

Download the model
        | for Vensim® Model Reader | for Vensim® |
        Model requires | historical data | to replicate past performance (save in same folder as model). Use Vensim option to import data under Simulation Control.


Download the Vensim® Model Reader 



Version history:

Oct 02, 2004. Created page for TAMU servers.
Mar 24, 2022. Updated data file to new Vensim format *.vdfx. Updated link to Vensim Reader.