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12/24/2012

SERVICE OPERATIONS MANAGEMENT @

ASSIGNMENT
ZAPPOS
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Table of Contents
1. Introduction .......................................................................................................................................... 3
2. Theoretical Framework of Service Operations Management............................................................... 3
2.1 Areas of Concern in Operations Management ................................................................................ 4
2.1 Operations Managment in Service Industries ................................................................................. 4
2.1.1 Operations Quality Control ........................................................................................................... 5
2.1.2 Innovation Culture ........................................................................................................................ 6
2.1.3 Supply Chain Management Processes .......................................................................................... 6
2.1.4 Operations Capacity Management .............................................................................................. 7
2.1.5 Performance Measurement ......................................................................................................... 7
2.2 Current Trends in Service Operations ............................................................................................... 8
2.2.1 Globalization of the economy .............................................................................................................. 8
2.2.2 Total quality management ........................................................................................................... 8
2.2.3 Empowerment .............................................................................................................................. 9
2.2.4 Technology ................................................................................................................................... 9
3. Zappos – Contemporary Online Service Operations............................................................................. 9
3.1 Adapting the service Operations model ......................................................................................... 11
3.1.1 Service Operations at Zappos ..................................................................................................... 11
3.1.2 Zappos Call Center’s role in Customer Satisfaction .................................................................... 13
3.2 The Results of Effective Call center Operations .............................................................................. 14
4. Conclusion ........................................................................................................................................... 15
References .................................................................................................................................................. 16
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1. Introduction

Operations management is very important for any organization in order to rightly manage the

resources so that a company can produce the products and services appropriately. Any

company’s resources include materials, people, information and technology. The resources

should be utilized wisely in order to produce the relevant services and products. Hence,

operations is all about carefully supervising inputs, that is, resources to make the final outputs,

that is, products or services. According to Johnston and Clark, (2005), operations management

combines all the other activities going on in an organization in order to produce the goods or

services.

According to Wild (2002), there can be many different kinds of resources, few of them may

includes, Human resource, infrastructure, raw material and energy. This report is primarily

focused on the discussion of the operations management processes in context of service industry.

Theoretical framework is based on the important theories and studies related to operations

management of service sector. The case study selected for this report is of service operations of

Zappos, the world renowned online shoe store. The service objectives, challenges, customer

based online operations, and call centre strategies of Zappos are discussed in detail.

2. Theoretical Framework of Service Operations Management

Historically, operations management was solely concerned with the factory organization and

hence, people started calling it as manufacturing management, afterwards, distributors started

taking interest and came forward and the name became production management. In the period of

1960s the sector of services also became the part of production management and the name again
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changed as operations management, which is being used until now (Wright et al 2004). There are

certain factors because of which operations management is still developing.

2.1 Areas of Concern in Operations Management

Operations management mainly includes, planning, organizing and controlling. Planning

includes formulation of procedures and guidelines and it also includes making the future policies

for management. The key task of an operations manager is to highlight the goals of operations

department and then allocate the task in order to achieve the goals in the most effective and cost

saving way. An organization would only become successful when it will rightly organize and

allocate the responsibilities and take the right information through various channels. Controlling

involves making sure that the inputs are rightly being used and it will be able to produce the

required outputs in order to achieve the organizational goals. Operations manager should also be

concerned with the impact of management policies on the employees’ behavior and the

perspective of employees’ about the newly made management policies.

2.1 Operations Managment in Service Industries

Operations management is merely a process of converting inputs into outputs and hence, it

involves management as well as services industries. The activities of manufacturing industries

includes, transforming inputs which includes, raw material, labor and capital into the final

products or goods. The services industry does almost the same, the minor difference is that

services industries converts the inputs into intangible outputs. Slack et al (2008) is of the view

that both the manufacturing and services industries try to produce the products and services

within an allotted budget and make sure that the goods are properly being delivered to the
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markets and the quality is according to the requirements of customers, this shows the efficiency

of the operations. The service operations strategies are explained by the help of following

diagram which represents the main components of service operations.

Fig. 1 Service Operations Strategies

Source : Slack et al (2008)

2.1.1 Operations Quality Control

The idea of quality control is different in both the industries, that is, manufacturing and services

industries. Service quality is measured using qualitative approaches and the quality of tangible

goods is measured while using quantitative approaches (Hollins and Shinkins, 2006). It is not

easy to deliver the best quality products in the market as it requires skillful employees and the
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employees should have good inter personal skills to grab the attention of the customers

(Thompson, 1993). Operations managers are also required to focus on quality of the goods along

with working under the budget constraint to make the products in the most cost effective way.

The services industry face many complications as compared to manufacturing industries as the

service industry is labor intensive and it becomes difficult for the managers to focus on the

performance of each and every employee.

2.1.2 Innovation Culture

Innovation is all about improving the efficiency in all the functions of an organization.

Innovation will lead to the improved quality products and decreased cost of production (Slack et

al., 2008). The concept of innovation is a key concept in both manufacturing and services

industries. Manufacturing business can have the example of innovation in a way that a company

is manufacturing a new model of car which consumes low fuel. Services industry can utilize

innovation by improving the customer services so that the turnover rate of customers can

increase, for example, service industry can offer the help and guidance to its customers 24 hours

a day. Service industries can also attract new customers by offering perks and benefits, in this

way not only a company would be able to attract new customers but also can be able to retain the

old clientele.

2.1.3 Supply Chain Management Processes

Supply chain function includes all the activities which take place starting from planning towards

the finished goods (Mahadevan, 2010). According to Lee and Billington(2002), supply chain

management is the blend of activities which starts from buying of raw material, converting the
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raw material into semi finished or finished goods and finally delivery of the finished goods to the

customers by using various distribution channels Transportation, logistics and purchasing are

important functions of supply chain management.

Supply chain management ensures the availability of right quantity in the markets to ensure the

satisfaction of customers in the most efficient way. Both manufacturing and services industries

manage inbound logistics in the similar manner, which means, purchasing of raw material and

transferring the material into final product (Thompson, 1993).

2.1.4 Operations Capacity Management

The term capacity carries an important place in the strategy of operations. Capacity can be

termed as the value added activity which, if rightly managed can serve the best in critical times

of operations management. In services industry, the capacity is maintained according to the

demands of customers and this task is done by operations managers (Wright and Race, 2004). In

services industry, it is assumed that under utilization of capacity is profitable then losing the

customers against competitors. Time plays an important role in managing the capacity according

to the varied demands of the customers. Projection of demand is done on different criteria like

the quantity and time of customers; the services required to serve individual customers and the

right and scheduled resources in order to meet the demands of the customers (Wright and Race,

2004).

2.1.5 Performance Measurement

Performance measurement is all about assessment of performances by getting the feedback from

both internal and outside the organization. The processed done to make sure that the goods and
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services are being produced and delivered according to the requirements of the customers and

performance management also helps in improving the overall services given by the organizations

(Hollins and Shinkins, 2006). The key components which are considered in performance

management are resource utilization, profitability, market performance and employee

performance (Wright and Race, 2004). Services provided to the customers can be measured

through include score cards, statistical process control and benchmarking. Service industries

measure their performances while using qualitative approach by evaluating the customer services

being delivered to the customers by their employees.

2.2 Current Trends in Service Operations

The recent developments in service sector have facilitated the developments of processes and

principles in this sector. Some of the recent trends are discussed below:

2.2.1 Globalization of the economy

Increase in competition has made the firms more alert in terms of producing best quality services

and products. This competition has declined the importance of locally or domestic products. The

current era of competition can be termed as time based competition, which requires rapid

production of goods maintaining the lead time and these are considered as a significant challenge

for an operations manager (Heizer and Render 2006).

2.2.2 Total quality management

In the early era of 1980s and 1990s, the idea of total quality management became highly

recognized and practiced in all kinds of organization. This approach became famous because of

the fact that it emphasizes the idea to manage the overall operation operations in order to become
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more efficient and productive organization. It also delivers the concept to improve and

strengthen all the personnel related to operations and management (De Menezes 2012).

2.2.3 Empowerment
Empowerment delivers the idea to manage all the functions in a cost effective way. It emphasizes

the overall improvement of operations and especially emphasizes the process of decision making

to enable an organization to produce quality results and services in the most effective way

(Mahadevan 2010).

2.2.4 Technology
The idea of information technology revolved in the era of twentieth century and that too came up

with many opportunities to improve the overall operations in an organization. In today’s time, it

became very important for an operations manager to have the knowledge and command over

information technology to produce quality results. The manager should have the knowledge

about design, implementation and operations, because of the improved technology, operations of

an organization are improving but on the contrary, if the technology is not rightly managed, it

will lead to the negative results (Weinberg 2001).

3. Zappos – Contemporary Online Service Operations

Zappos is one of the globally renowned online shoes and clothing store, headquartered in USA

but operated through a network of global call centers. The chief executive of Zappos, Tony

Hsieh, when took charge in the year 1999, the annual sales of the company were $1.6m and he

made 2 important goals in the 10 years period, the first goal was to achieve $1bn annual sales

and secondly, to make the company best amongst all. According to Mr. Hsieh (2010), the
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corporate culture plays an important role in making the work and atmosphere exciting. Zappos

maintained a playful culture and they believed in the values like “create fun and a little

weirdness” and because of this, the employees remained motivated and worked comfortably to

achieve the targets. Zappos follows quite a different process of recruitment which involves two

interview processes, the first one is to evaluate the job fit and the second is used to evaluate the

cultural fit of a candidate with the company (Hsieh 2010).

Fig. 1: Core Values of Zappos

Source : Zappos Website 2012

The company’s core focus is on the transparent process of dealings with suppliers, investors,

customers and employees. The company uses the blogs for each and every detail so that the

outsiders can also see the transparency in their dealings. Mr Hsieh believes that a company’s

culture plays a significant role in achieving long term success and it works as an investment in
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the favor of the company. Appropriate values, customs and beliefs make the workplace energetic

and employees feel confident while working for this kind of organization (O’Brien, 2009).

3.1 Adapting the service Operations model

The company believes in providing the best ever customer services. The services like free-call

number, free shipping and returns, 365-day return policy and 24/7 availability are the most

popular services amongst all. Zappos always tried to deliver their promise; this is why the brand

name of Zappos is still sustained. Zappos believes in the strong relationship with its vendors, the

dealings with vendors are always transparent and they believe in collaborative partnership.

Vendors can see the inventory levels, profitability and sales and this is how the relationship of

vendors and the company remained maintained and sustained (Ed Frauenheim 2009).

3.1.1 Service Operations at Zappos

Zappos has always remained creative and tried their best to indulge both the employees and the

customers into the business. For the managers, it is highly important to engage the employees in

some interesting activities so that they can remain involved and perform at their best. These

activities play a significant role in producing the quality outputs from the employees’ end. In this

way, employees can prove to be more productive and can create value for the company as well as

customers, but it is not necessary in every company’s case, as every company has different

criteria and values and that should be rightly served rather than imitating the practices of some

other company (Joyce 2010).

Zappos is doing well in providing customer support to its customers, though, it is a web based

service but still, the company is doing well operating the company’s business from many
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locations. Though, it is not really easy to deliver the best by operating from different locations,

but the company is taking necessary steps to keep up the level of standards they are providing to

the customers. Zappos offered discounts and coupons to its customers and this is how the

company used to win the hearts of the customers. Customers of Zappos never tried to interact

with each other or in other words the customers do not interfere in the conversation of each

other. Though, customers were highly satisfied with the services of the company and this is why

the company manages to increase the sales volume every year (Cheryl 2010).

The company always wanted the people who can fit into their culture and not just work. It

became easy for the company to focus on their objectives after writing down the 10 core values

of the company and this is how it became easy for the company to make the decisions. Company

believes that the core values play a significant role in the hiring process of the company. In fact,

the reviews are based on the core values of the company. Zappos believe that the core values

have made the task easier for the company and it became easy for them to manage their culture

and become one of the strongest brands in the online retailers (Greg 2011).

When the company published its core values in writing, it let the company communicate the

mutual beliefs of the management to employees. Zappos believe in maintaining culture as it

plays an important role in any company’s success. The company does not only talks about the

values and culture but they are also determined to manage the teams accordingly. The delivering

“WOW Service to the customers” is the basic core value of the company, act as the focus of call

center operations (The Huffington Post 2012).

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3.1.2 Zappos Call Center’s role in Customer Satisfaction

There is no doubt that employees have fun while working at Zappos but this also remains the fact

that in the ever changing and dynamic environment, the requirements of the customers are

changing rapidly and so does the efforts are required from the company as well as employees’

end. The company believes in following three Cs to make the performance of the company

consistent in call center operations. The company keeps the use of three Cs at the top of the

priority and believes in doing so in the later years. The company follows three Cs, which are

communication, consistency and culture. The company believes that three of the Cs is highly

important for the company’s success. The three Cs are present in every decision and activity

going on in the company. The company also believes that the reason they have become so

successful and the pioneers is because of utilizing these 3 Cs in every decision the company

takes. Zappos believe that communication play a significant role in making the culture stronger

(Elizabeth 2012).
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The above fig. 3 shows the call center operations’ philosophy at Zappos. Zappos believe in doing

team work and this is the reason the company makes collaborative decisions, as, it is not easy to

make decisions rapidly on the daily basis in this fast paced and dynamic work environment

(Brain and Company 2010). This is the reason that the company made the decision to use the

three Cs and soon after that, the company made the email addresses on the three Cs and assigned

the managers to control or manage the addresses. The email addresses then used for the purpose

of getting feedback, Zappos take the decisions based on their core values to satisfy the

customers. It is not necessary that the decisions always turn out to be positive in the favor of the

company but the managers take it neutrally and learn from the mistakes and move on (Greg

2009).

3.1.3 Increasing Customer Engagement through Call Center Operations

The company has maintained the environment which is positive and keeps on changing with the

changing requirements of the customers. Employees in the company are satisfied with their

career progress and do not just work in the company for earning money. It is completely up to

the employees that what actually the employees want to achieve from here and the management

is willing to help and guide them. The call center human resource strategy is to recruit talented

workforce and highly skilled workers. Zappos also believe that managing the culture is not just

the responsibility of CEO but it is the responsibility of every individual (Hsieh 2010).

3.2 The Results of Effective Call center Operations

After maintaining a high standard of customers’ satisfaction and service excellence through its

call center operations, Zappos has achieved marvelous success as a remarkable online shoe store.
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In the year 2009, Zappos has been ranked at number 23 as one of the best online companies to

serve. The company also expanded its product line towards clothing where they can become

differentiator. Afterwards, Zappos was acquired by Amazon in the year 2009 for $1.2bn.

Though, the company is still operating its operations as an independent entity maintaining the

same core values and culture.

4. Conclusion
Management of operations is one of the important tasks which a company does to manage its

overall activity and by doing operations management, an organization makes sure that they are

progressing in the right direction where they can achieve organizational goals. Operations

management also includes the designing and management of all the activities which are

necessary to produce the goods and services in order to meet the customers’ requirements. The

process primarily includes arranging the resources which are required to make or produce the

finished goods to meet the customers’ requirements in the cost effective way.

The service operations at Zappos are based on ten core values and centered at the complete

customers satisfaction and engagement. The company is world renowned for its extraordinary

and non traditional customer services through online call canters and web portals. It is concluded

that the success of service operations at Zappos is based on its employees’ dedication, quality

control, and efficient delivery of services at call centres.

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