gorizes industries into four separate groups, but al- lows that firms within the industry may position
themselves differently. Collier and Meyer generally classify industries as well, but in empirical tests
allow that, in the stock brokerage industry for exam- ple, Charles Schwab and Merrill Lynch occupy
slightly different places in their matrix. Tinnila and
¨
Vepsalainen allow for considerable variation within
¨ ¨
an industry, but only along an approved matrix diagonal. In this manuscript, however, four distinct
strategies are developed that any firm within a mixed-services industry can adopt.
Rather than assigning optimal points, the typology here aligns organizational structure with service sys-
tem strategy. As such, it falls within the strategic research stream known as Acontingency theoryB or
Ž the Astrategy and structureB literature e.g., Chandler,
1962; Galbraith, 1995; Galbraith and Kazanjian, .
1986 . In general, this literature portrays such man- agerial options as de-centralization, departmentaliza-
tion and specialization as not being inherently good or bad, but as appropriate or inappropriate based on
the fit with overall strategy and the competitive environment. Likewise, this manuscript does not
judge de-coupling to be Aincorrect,B and it does not portray prior literature extolling the virtues of de-
coupling as wrong. Rather, this model portrays the de-coupling decision as one that fits certain strategic
objectives and not others.
3. Operational strategic focus
This typology positions the de-coupling choice against the second axis of strategic operational goals
Ž .
see Fig. 1 . We collapse strategic focus into the two dimensions of AserviceB and cost. We use the term
AserviceB in the same fashion as Schlesinger and Ž
. Heskett 1991 , meaning the collection of service
concepts that are distinct from a cost minimization perspective. Within this service dimension, we in-
tend to capture the various non-cost minimization
Ž .
strategies that have been articulated. Porter 1985
Fig. 1. Back-officerFront-office De-Coupling Strategies with Specific Bank examples.
labeled three strategies as cost, differentiation and Ž
. focus. Chase and Acquilano 1995 mention the four
strategies of cost, quality, speed and flexibility, while Ž
. Galbraith
1995 mentions five generic strategies.
These strategies have been further refined, with, for Ž
. example, Parasuraman et al. 1985 segmenting ser-
Ž .
vice quality into five dimensions, Garvin 1984
parsing quality into eight dimensions and Gerwin Ž
. Ž
. 1993 and Upton 1997 further segmenting flexibil-
ity. Generally speaking, there are certainly not merely
two choices for operational strategic direction, and it would be absurd to reduce the complexities of all the
potential non-cost-oriented operational perspectives into one term, as they have considerable diversity.
However, we will argue that achieving those diverse AserviceB objectives requires similar choices with
respect to de-coupling. Largely, the theoretical and empirical evidence will be presented later, but we
review the service operations strategy and design literature to buttress these contentions here, and di-
vide the review according to the description in the typology: reviewing cost and non-cost, or service
strategic foci with respect to the back office.
Furthermore, it is also somewhat contrived for any typology or taxonomy to have delineated spe-
cific, named Aboxes,B as continuous spectrums are usually more appropriate. We focus the visual pre-
sentation in Fig. 1 to show the two categories of cost- and non-cost-based strategies due to the over-
whelming history of both the academic and practi- tioner literature that has focused on the juxtaposition
of cost minimization and back-office de-coupling. As
Ž .
noted by Schlesinger and Heskett 1991, p. 71 ,
Ž . A f or more than 40 years, service companies suc-
cessfully followed an industrial model based largely on the principles of traditional mass-production.B
where the managerial goal was cost reduction. Chase Ž
. 1996, p. 299 notes that, historically, a typical re-
search paper in service operations had the goal of Aminimizing total system cost.B The current typol-
ogy proposed here is by nature a model of reality, and one of the important points of this model is
confronting this history.
3.1. Cost minimization strategy In terms of work organization, Chase’s work in
the 1970s and 1980s is clear: back-office work should be segregated from front-office work, both in terms
of the people who perform it and in terms of placing that work in a physically different location. Front-
office personnel should focus on the customer, and customer contact enhancing strategies should be em-
ployed in the front office. Back-office work should be rationalized by traditional division of labor tech-
niques and managed for cost reduction by standardiz-
Ž ing the work. For example, Chase and Tansik 1983,
. p. 1044
state as a proposition that Alow-contact subsystems seek to maximize efficiency goalsB;
Ž .
Ž . Chase et al. 1984, p. 544 notes that A i n low-con-
tact service environments, the opportunity for de- coupling should render manufacturing-organization
design procedures appropriate.B Though Chase did not specifically comment on centralization of back-
office work, the personnel and facility cost saving benefits he states can be achieved from his advice
implying centralizing the back-office services as well. This combination of a cost minimization strategy and
high de-coupling is termed the ACost LeaderB quad- rant in Fig. 1.
Others also stress the need for rationalizing the back-office work in services. Seminal work by Levitt
Ž .
1972, 1976 exhorts managers to take a Aproduc- tion-line approach to serviceB by employing de-cou-
Ž .
pling processes. Collier and Meyer 1998, p. 1233 Ž .
state that A b ack office processes . . . are removed from customer view and can be designed for effi-
Ž .
ciency.B Where Silvestro et al. 1992 mention a focus on back-office processes, it is in connection
with limiting customization and employee discretion. The views of both Levitt and Chase concerning the
back office can be traced to the view of Thompson Ž
. 1967 regarding back-office work as the Atechnical
coreB that should be buffered from the randomness of customer behavior.
Ž .
Ž .
Apte and Mason 1995a,b and Wilson 1995 echo this view but focus on geographic separation in
a global context, where back-office operations are in different countries than the front office. Additional
cost advantages from this approach are the abilities to exploit international wage differentials and tax
treatments in addition to possible benefits from a better labor market for the back office.
This is also a strong push for cost minimization and de-coupling in the trade literature. It appears to
be canonical in the retail banking practitioner litera-
ture that de-coupling the back office and managing it Ž
for cost minimization is necessary to success Reed, 1971; Burger, 1988; Cronander, 1990; Pirrie et al.,
. 1990 . Other back-office services such as govern-
Ž .
Ž mental offices Connors, 1986 , hospitals Queree,
. 1994 and the de-coupling of general corporate func-
Ž tions also appear to be in vogue Sharp, 1996; Keith
. and Hirschfield, 1997 .
Despite the voluminous research linking cost min- imization and de-coupling, a cost minimization strat-
egy is not always enhanced by a de-coupled back Ž
office this view will be more fully developed later, .
but a sketch is given here . Queuing theory results indicate that to serve random customer arrivals in a
timely fashion, a system must endure idle time in front-office workers. Due to the mathematics of wait-
ing lines, this is especially true of small service systems. Consequently, the AKioskB firms of Fig. 1
largely eliminate the back office to reduce the front- office idle time and cut costs.
3.2. SerÕice non-cost minimization strategies However, back-office tasks need not only be
viewed as tasks where efficiency is the sole target. The de-coupling process is recommended in the liter-
ature for another reason beyond cost reduction: dif- ferent employee types have widely differing apti-
tudes for, and attitudes toward, each type of work. That is, the two types of activities require two Acon-
trasting classes of worker skills and orientations — public relations and interpersonal attributes for
high-contact purposes and technical and analytical
Ž attributes for low-contact purposesB Chase, 1978,
. p. 140 . This view allows for back-office personnel
to assume the role of an expert in a specialized area, capable of superior work within their realm.
Ž .
Heskett 1986, 1987 also points toward using the back office to provide superior results in non-cost
strategies by linking the back office to the same marketing directives that the front office is organized
around. In essence, for the back office, the Astrategic service visionB advocated by Heskett and Heskett et
Ž .
al. 1994, 1997 represents a change in focus from managing for cost containment and transaction man-
agement to managing for revenue enhancement and customer loyalty by aligning the back office for, say,
speed or high quality. This view will be labeled as the AFocused ProfessionalB approach in this typol-
ogy. Note, though, that this view directly precludes
many of the de-coupling advantages noted in Chase Ž
. 1978, 1981 . For example, under the approach de-
scribed by Heskett, both the front and back offices would ensure that sufficient capacity existed to serve
customers, so the personnel level in both areas would be set accordingly. A main advantage of de-coupling
Ž .
according to Chase 1978, 1981 is that while front- office labor levels must be set at peak demand,
back-office labor levels can be set at average de- mand and backlogging is used to reduce costs.
Another view, called the APersonal ServiceB quadrant in Fig. 1, essentially eliminates the back
office and places back-office tasks in the front office. Ž
. Larsson and Bowen 1989, p. 227 note that, under
Ž . certain circumstances, A t he main coordination task
is to adjust unique customer requests communicated to front-office employees to the performance of
back-office employees. One means for making this adjustment is to have the same employees assume
both front- and back-office roles.B In accordance
Ž .
with this view, Chase and Hayes 1991 state that Ž .
A i n a 1978 article, one of us advocated that many service activities should be shifted to a remote back
office in order to maximize efficiency . . . In retro- spect, this closed system philosophy overlooked the
fact that there are positive benefits to both the cus- tomer and the organization by having the customer
closely linked to the server, even though the job is traditionally performed in the customer’s absence.B
By linking all service systems that focus on non- cost minimization objectives within the same quad-
rants of Fig. 1, we do not intend to state that the service delivery systems of firms in the same quad-
rant will be identical and that they are competing for the same customers. Clearly a delivery system that
focuses on one element among the AserviceB dimen- sion may be different than one that focuses on
another, but they will have strong commonalities that are discussed at length later. Rather, we seek to point
out that non-cost minimization objectives may be attained from both coupled and de-coupled back
offices, and that the basic service delivery system alignments will differ accordingly.
Beyond the delineation of ideal types, strategic congruence within a type is discussed. We assert that
there are basic operations, marketing, human re- source and MIS components of each matrix quad-
rant, and that firms cannot effectively mix functional imperatives of different quadrants. Chase and Hayes
Ž
. 1991 asserted that many service firms lack a coher-
ent link between operations and strategy that causes firms to behave sub-optimally, but they focused
solely on non-cost strategies. The lack of strategic consensus in operations was measured in a manufac-
Ž .
turing setting Boyer and McDermott, 1999 . Lack of strategic consensus is an important aspect of this
manuscript as well. In the author’s experience, the most common problem in mixed services is a front
office managed for a non-cost minimization strategic goal and a de-coupled back office managed for cost
minimization. In this same vein, we also posit that there are inherent difficulties in attempting to occupy
more than one quadrant in Fig. 1 with the same service system, in merging operations occupying dif-
ferent quadrants, or in moving to a new quadrant.
4. Typology development
