CRM Ch4_merged PDF Lectures on CRM
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Universitatea Politehnica din București
Maximilian Nicolae
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This document is a lecture on customer relationship management (CRM), focusing on a system engineering perspective. It explores the automation of CRM activities, including sales, marketing, and service automation. The chapter discusses the importance of information technology and various CRM solution providers. It also details the functionalities of sales-force automation (SFA) tools.
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Lectures on CRM. A system engineering perspective Maximilian Nicolae Chapter 4 Automating CRM Introduction Customer relationship management (CRM) encompasses a broad spectrum of activities aimed at attracting, retaining, and sa...
Lectures on CRM. A system engineering perspective Maximilian Nicolae Chapter 4 Automating CRM Introduction Customer relationship management (CRM) encompasses a broad spectrum of activities aimed at attracting, retaining, and satisfying customers. Automation plays a pivotal role in this process by streamlining workflows, enhancing eDiciency, and enabling consistent customer interactions across various stages of the customer lifecycle. This chapter delves into the three critical components of CRM—sales automation, marketing automation, and service automation—each representing a distinct yet interconnected aspect of customer engagement. Through automation, companies can achieve greater accuracy, faster response times, and tailored experiences that align with customer expectations. Sales automation focuses on simplifying the sales process and increasing productivity through tools like lead management and pipeline tracking. Marketing automation seeks to optimize campaigns, segment audiences, and analyze performance metrics, ensuring the delivery of relevant and timely messaging. Finally, service automation emphasizes post-sale interactions, enabling organizations to resolve customer issues eDiciently while fostering long-term loyalty. By exploring the functionalities and applications of these automated systems, this chapter highlights how businesses can leverage technology to meet customer needs, reduce operational complexities, and gain a competitive edge in dynamic markets. Information Technology in CRM Most companies have already implemented some form of CRM system [cun02]. The main driver for this widespread adoption is the ability of CRM systems to support global business expansion. These systems rely heavily on information technology, and successful CRM solutions emerge from a well-defined strategy complemented by the right technological tools [cun02]. Despite the desire for and benefits of automating CRM processes, human involvement remains indispensable, particularly in areas requiring empathy, creativity, or nuanced decision-making. CRM can also be understood within the framework of emerging ecosystem models. These models often utilize a helix structure to represent the interplay of multiple components working synergistically to drive innovation and performance. According to [but09], the CRM ecosystem consists of three major categories: CRM solutions providers, hardware and infrastructure vendors, and service providers. Visualizing Lectures on CRM. A system engineering perspective Maximilian Nicolae these categories within the helix model, as illustrated in Fig. 1, helps highlight the dynamic relationships between these contributors. CRM solution providers Service providers Hardware and infrastruct. vendors Figure 1. The helix model of CRM ecosystem Some examples of companies and their contributions to the CRM ecosystem: CRM Solutions: o For Enterprises: § Amdocs: CRM § Pegasystems: Chordiant Cx, Customer Process Manager § Consona: Onyx CRM § Oracle: E-Business Suite CRM, Siebel CRM, PeopleSoft CRM § SAP: mySAP CRM o For Mid-Market: § Salesforce.com, Microsoft Dynamics CRM, SugarCRM, Maximizer CRM, and others. o Specialized Tools: § Analytics (e.g., SAS, SPSS), Customer Data Management (e.g., Dun&Bradstreet), and Marketing Automation (e.g., Aprimo). Hardware and Infrastructure Vendors: Major companies like IBM, Dell, and Cisco form the backbone of IT infrastructure supporting CRM systems. Lectures on CRM. A system engineering perspective Maximilian Nicolae Service Providers: o Strategy consulting (e.g., McKinsey) o Business consulting (e.g., Accenture) o Technical consulting and outsourcing (e.g., IBM, EDS). Together, these elements create an ecosystem that enables businesses to customize and enhance their CRM strategies while adapting to technological advancements and market needs. Sales-Force Automation (SFA) Sales-force automation (SFA) tools have been an integral part of CRM systems since the 1990s, initially assisting sales representatives and managers [but09]. Today, SFA has evolved into an essential component of B2B environments, streamlining processes and enhancing eDiciency. By leveraging technology, SFA minimizes the need for direct human intervention in repetitive tasks. For instance, when configuring an online product, the customer may bypass traditional interactions with a salesperson, reducing reliance on a large sales force while improving the customer experience. SFA plays a pivotal role in achieving mass customization, a concept discussed earlier. Its functionalities, as cataloged in [but09], are diverse and comprehensive: Account management – assisting the sales representatives or other authorized persons to manage a customer profile with details regarding contact and orders, both from the past or in process. Activity management – operates with activities like activity scheduling, monitoring their progress, configuring alerts based on activities evolution, etc. Contact management – provide tools for handling contact details: contact lists, appointments, etc. Contract management – facilitates creation of new contracts, access of authorized persons to contract details like clauses, period, and could speed up the approval time by eliminating waste (overhead). Document management – operates in an electronic manner with the myriad of papers and documents involved in sell-buy process like generating forms, filling tools, generating quotations, storing documents, instant accessing of documents from various places, etc. In the documents category, the marketing materials can also be included. Event management – provides tools for managing events like meetings, seminars, webinars, conferences, trades. This could include registration forms, tasks management, event’s calendar, resources management, reports, materials, etc. Incentive management – supports the stimulation schemes for salespersons who are benefiting from bonuses, commissions, targets, etc. It can be easily integrated with the payroll application. Lectures on CRM. A system engineering perspective Maximilian Nicolae Lead management – assists in the selling process to be led by proper people in accordance with the order’s characteristics. For example, valuable customers or orders are directed to special designated persons for dealing with. Other functionalities could be related to balancing the sales team members, identifying the suitable person in terms of location and skills and ensuring protection measures between sellers who are competing on stimulations. Opportunity management – supports the potential sales which have previously been identified and need attention. Such opportunities are recorded with typical details regarding the customer’s details, sale details and probability of fulfillment. An opportunity can pass to different stages like those related to customer’s first contact: prospecting, potential lead, qualification, opportunity, building vision, short list, selected, negotiation, closed/lost, each with an associated probability. Order management – assist both customers and companies in the ordering process. The customers can complete their orders and access suitable quotations based on quantity and value ordered. They have access to price breaks, shipment costs, taxes, and discounts. Also, they are automatically advised about incompatible items on the order list and there are suggested additional items which could be considered for purchasing. The stocks, availability time and delivery time are also provided. The company uses the same system to deliver the order at the established price which was computed by the company’s rolls. The all system can be integrated with the operation process and delivery, thus existing premises for the commitments to be accomplished. This is a very powerful and common system today. Pipeline management – as well as in line production, the sales can be seen as a pipeline process from opportunity towards closure. Assisting this with technology will improve the process performances and therefore the results. If the pipeline management tool has analyzing features, then other opportunities could be found and together with the existing one can be better handled. Product encyclopedias – designates products catalogs with search capabilities together with comprehensive details about products. Product configuration – assists with configuration of products or services also providing price information. This was discussed and exemplified in the context of new product/service development and mass customization. Product visualization – adds a new level to product configuration. It was also discussed in the same context as above and we should remember the phases of designing approach: design for customer, design with customer and designed by customer. Proposal generation – assists salesperson to create and develop proposals for customers in an integrated manner. There are templates and easily accessible information (products and services with their specifications and related price) for composing such proposals. Quotation management – resembles the proposal generation but the process is more customer led. The customer is asking for proposal and the answering time will also be an objective. As well, the tool could automatically answer to customers request for proposal through previously defined and agreed channels (fax, email, auction sites). Lectures on CRM. A system engineering perspective Maximilian Nicolae Sales forecasting – as the name says, it provides tools for sales forecasting. Territory management – assists in delimitating areas for sales and delivery based on specific criteria like those mentioned in lead management. Workflow engineering – because selling is a process and the products or services offered for sales can be seen as outcomes of processes, workflow tools are as well suitable to describe, design, monitor and improve sales and facilitate the integration with transformation processes of production and delivery. These functionalities are augmented by templates and predefined workflows to ensure ease of use and quick adoption. For example, tools like proposal generation and quotation management allow businesses to respond promptly to customer requests, often automatically, reducing delays and increasing customer satisfaction. A particularly innovative aspect of SFA lies in its integration with other processes, such as delivery and production workflows. By connecting sales to operational systems, companies can better meet their commitments, improve forecasting, and optimize resource allocation. Features like sales forecasting, territory management, and workflow engineering further demonstrate the breadth of SFA’s capabilities, transforming sales operations into a seamless and data-driven process. Overall, SFA exemplifies how automation can enhance not just eDiciency but also strategic decision-making within CRM, driving value for both businesses and their customers. Marketing Automation Just like sales processes, marketing can also be perceived as a structured, iterative system, which makes it an ideal candidate for automation. Automating marketing processes can significantly enhance performance metrics such as customer engagement, campaign ROI, and time-to-market. This section outlines key functionalities of marketing automation tools as described in [but09] and introduces additional insights into their relevance. Core Functionalities of Marketing Automation Tools Asset Management Marketing automation supports the tracking and strategic utilization of a company’s assets, whether tangible (e.g., physical goods), intangible (e.g., intellectual property), or hybrid. Assets like brands and licenses can be leveraged more eDectively for market opportunities. Campaign Management Advanced tools assist in designing, deploying, monitoring, and analyzing marketing campaigns. An eDective campaign management solution integrates seven core Lectures on CRM. A system engineering perspective Maximilian Nicolae elements: workflow, segmentation and targeting, personalization, execution, measurement, modeling, and reporting. Customer Segmentation Customers are clustered based on metrics such as recency, frequency, and monetary value (RFM). While these metrics are useful, it is essential to periodically validate assumptions to avoid stereotyping customers in ways that might miss nuanced behavior patterns. Direct Mail Campaign Management Contrary to assumptions that direct mail is obsolete, personalized, and well-timed mail campaigns often yield high engagement, especially in niche markets. Automation ensures precision in list management and personalization. Document Management As in sales automation, marketing document management facilitates eDicient handling of marketing collateral, enabling seamless collaboration between teams and faster deployment. E-mail Campaign Management With email remaining one of the most cost-eDective marketing channels, automation supports design, delivery, and performance tracking. Metrics like open rates and click- through rates help refine strategies. Enterprise Marketing Management (EMM) EMM tools cater to large-scale organizations, integrating cross-channel eDorts and optimizing campaigns for digital, social, and traditional marketing channels. They also provide real-time consumer behavior insights and predictive analytics to drive strategic decisions. Event-Based Marketing This involves identifying trigger events (e.g., customer lifecycle milestones, market trends) that can lead to targeted marketing actions. Predictive analytics enhances the eDectiveness of this functionality by anticipating customer needs. Internet Marketing & SEO From pay-per-click campaigns to optimizing search engine rankings, automated tools ensure businesses remain visible and competitive in the digital landscape. SEO (Search engine optimization) functionalities refine how web content aligns with user search behaviors. Lead Generation & Management Beyond generating leads, automation ensures appropriate routing to sales teams or nurturing sequences. This functionality bridges marketing and sales, fostering better conversion rates. Lectures on CRM. A system engineering perspective Maximilian Nicolae Loyalty and Retention Programs Automation manages loyalty schemes eDiciently by tracking customer engagement and delivering personalized rewards, often integrated into mobile apps or digital wallets for ease of access. Marketing Analytics & Optimization Leveraging data mining and statistical models, analytics tools oDer insights into campaign performance. Optimization tools balance competing objectives, such as maximizing outreach while minimizing costs. Marketing Resource Management (MRM) MRM ensures eDicient allocation of budgets, human resources, and materials, directly impacting campaign eDectiveness and ROI. Partner Marketing Large companies often market through intermediaries. Automation tools facilitate access to resources, allowing partners to align with overarching marketing strategies. Product Lifecycle Management Each stage of a product or service lifecycle (introduction, growth, maturity, decline) can be managed with tailored marketing strategies to optimize revenue and market position. Telemarketing & VoIP Integration Features include Interactive Voice Response (IVR), predictive dialing, and seamless integration with customer data for outbound and inbound interactions. Trigger Marketing Automated actions are launched in response to predefined events, such as sending welcome emails or personalized discounts based on customer behavior. Web Analytics Tools like Google Analytics provide in-depth insights into visitor behaviors, such as bounce rates, session duration, and conversion pathways. This data informs UX improvements and content strategies. Appendix 1 presents Common terms used in Google Analytics. Workflow Engineering Marketing workflows, when automated, ensure consistent execution of processes like approvals, resource allocation, and performance reviews, reducing bottlenecks and human errors. One of the emerging trends in marketing automation is the integration of AI-powered chatbots and voice assistants. These technologies can proactively engage with customers, answer queries, and guide purchasing decisions, all while collecting valuable data for marketing insights. Another frontier is hyper-personalization. While traditional automation provides segmentation and targeting, AI and machine learning enable real-time adaptation of Lectures on CRM. A system engineering perspective Maximilian Nicolae marketing content to individual customer preferences. For example, dynamic pricing or content recommendations tailored to browsing history can drastically improve conversion rates. Finally, as privacy concerns rise, marketing automation must align with data protection regulations (e.g., GDPR, CCPA). Compliance features like opt-in tracking and secure data management are now critical to maintaining customer trust while leveraging automation. Service Automation The customer relationship can be conceptualized as a continuous cycle encompassing three core states: awareness of the company’s oCerings (marketing), purchase (sales), and post-sale maintenance of engagements (servicing). Each of these stages benefits from automation to improve eDiciency and customer satisfaction. This section focuses on the service stage, illustrating its functionalities as an automated system. Service automation spans diverse platforms, such as call centers, help desks, workshops, and websites with self-service capabilities. Key functionalities of service automation according to [but09] Activity Management Automates the scheduling, prioritization, and real-time monitoring of service-related activities, ensuring timely and eDective issue resolution. Agent Management Facilitates workforce planning and performance tracking using metrics like cycle time, work-in-progress (WIP), throughput, and queuing time. This is particularly vital in global, multi-channel service environments. Case Assignment Optimizes issue resolution by assigning claims to the most suitable team members or departments based on predefined criteria. Case Management Manages the entire lifecycle of a claim, from its initiation (ticket generation) to closure, ensuring structured and trackable resolutions. Contract Management Automates post-sale contract tracking and compliance, mirroring similar functionalities in sales-force automation. Customer Self-Service Provides tools enabling customers to resolve issues independently, reducing dependency on support staD. Self-service solutions, such as FAQs, interactive guides, or Lectures on CRM. A system engineering perspective Maximilian Nicolae troubleshooting portals, improve customer experience and operational eDiciency. Common applications include mobile service configurations and e-learning platforms. Email Response Management Enhances email-based service with functionalities like spam filtering, automatic email routing, auto-replies, and claim status updates. Online forms are often employed to streamline the submission process, although personalized communication remains a preferred option for many customers. Escalation Management Evaluates and escalates issues based on their importance or resolution complexity, ensuring critical cases receive appropriate attention. Inbound Communication Management (ICM) Unifies customer interactions across various channels (e.g., phone, email, web forms) into a single view, enhancing service consistency. Invoicing Integrates task management with pricing systems to ensure transparent and eDicient billing, reducing disputes over service charges. Job Management Extends activity management to include cost estimation, service process optimization, and integration of third-party services where necessary. Mapping and Driving Directions Provides tools for eDicient navigation using electronic maps and GPS, often integrated with job management systems. Outbound Communication Management Keeps customers informed about claim statuses, invoices, and service satisfaction surveys, enhancing their overall experience. Queuing and Routing Implements metrics-based tools for prioritizing and assigning cases, reducing wait times and ensuring eDicient resource allocation. Scheduling Automates resource allocation across activity, job, and agent management, improving operational eDiciency. Lectures on CRM. A system engineering perspective Maximilian Nicolae Scripting ODers guided workflows for resolving issues, enabling less experienced personnel to provide eDective support. Service Analytics Provides key performance indicators (KPIs) such as capacity load, first-time fix rate (FTFR), and mean time to resolve (MTTR) to evaluate and optimize service operations. Service Level Management (SLM) Monitors compliance with service level agreements (SLAs), ensuring accountability and consistent service delivery. Spare Parts Management Tracks inventory, availability, pricing, and delivery timelines, either as part of job management or as a standalone system. Web Collaboration Leverages chat applications and remote assistance tools to address multiple issues simultaneously while reducing travel costs and downtime. Recorded interactions (e.g., chat logs, screen recordings) enhance training and operational eDiciency. Workflow Engineering Employs process optimization tools to streamline service delivery and minimize manual interventions. Among emerging trends in service automation, the following should be considered: AI and Conversational Bots Modern service automation increasingly incorporates AI-driven bots capable of understanding customer emotions and providing real-time solutions. Notifications now transparently indicate whether the customer is interacting with a bot or a human. Proactive Support Systems Predictive analytics are used to identify potential issues before they occur, enabling proactive communication and resolution. This approach minimizes downtime and improves customer satisfaction. Omni-Channel Integration Seamless service across channels ensures consistent experiences, whether customers interact via social media, email, or phone. Advanced tools consolidate these interactions into unified profiles for more personalized support. Lectures on CRM. A system engineering perspective Maximilian Nicolae Data-Driven Personalization Service automation tools leverage customer history and preferences to tailor responses and solutions, driving engagement and loyalty. Integration with IoT As IoT devices become more prevalent, service systems are evolving to interact directly with connected devices, enabling real-time diagnostics and remote troubleshooting. Conclusion CRM automation is an indispensable tool for modern businesses striving to deliver exceptional customer experiences. By automating key aspects of sales, marketing, and service, organizations can streamline operations, enhance decision-making, and foster meaningful customer relationships. Sales automation equips teams with tools to manage opportunities and drive revenue more eDectively. Marketing automation ensures campaigns are targeted, measurable, and impactful. Service automation bridges the gap between promises made during the sales process and the actual delivery of value, creating trust and satisfaction. The integration of these systems oDers a holistic approach to managing customer relationships, where every interaction contributes to a cohesive and positive experience. With advancements in AI, predictive analytics, and personalization, the potential for CRM automation continues to expand, enabling businesses to stay agile and responsive to customer needs. As technology evolves, the strategic adoption of CRM automation will remain a cornerstone of sustainable growth, helping businesses navigate challenges and seize opportunities in an increasingly customer-centric world. References [and02] Anderson, K., Kerr, C., 2002. Customer Relationship Management. McGraw- Hill [but09] Buttle, F., 2009. Customer Relationship Management. Concepts and Technologies. 2nd Ed, Butterworth-Heinemann, Elsevier. [cun02] Cunningham, M.J., 2002. Customer Relationship Management. Capstone Publishing (Wiley). Lectures on CRM. A system engineering perspective Maximilian Nicolae Appendix 1 Common terms used in Google Analytics (source: https://www.webanalyticsassociation.com/google-analytics-glossary/) Hit With Google Analytics, a hit is ANY request sent to the GA data collection system. This includes pageviews, events, custom variables, measurement protocol uploads, etc. You can backup your Google Analytics data by keeping a copy of the hits sent to Google. Pageview A pageview is recorded every time a page is viewed. Or, more technically, a pageview is recorded every time the Google Analytics pageview tracking method is executed. When a user hits the back button, a pageview is recorded. When a visitor hits refresh, a pageview is recorded. Every time a page is opened in the browser, regardless of whether it has been cached, a pageview is recorded. (Of course this assumes the tracking code is on the page in question.) Session A session consists of a series of pageviews that a single user makes during a period of activity. The session ends after the user either closes the browser, clears cookies, or is inactive for 30 minutes. (The timeout length is customizable in the tracking code settings) Users Users are defined by a unique ID – this ID is usually stored in a cookie. Whenever the tracking code is executed, it looks for cookies on the browser set by the current domain. If they can’t be found, new cookies with a new ID are set. Google Analytics emphasizes sessions over users because of the inherent inaccuracies of trying to track individual users. For example, a user who deletes their cookies, uses multiple browsers, or shares their computer will be inaccurately represented in the reports. Bounce A visit with one pageview. It doesn’t matter how long the visitor was on the page or how they left. Technically, it’s a visit with only one interaction. Time on Page Time on page is measured by subtracting the time a visitor hit a page from the time they hit the next page. (e.g. If they hit Page 1 at 12:00 and hit Page 2 at 12:03, time on Page 1 is three minutes.) This means that the time on page for the last page in a visit is always zero because Google Analytics doesn’t track pages being closed. Time on Site This is the sum of the time on page for all pageviews in a visit. Or, more accurately, it is the diDerence between the time they viewed the first page and last page in a visit. Note that viewing pages in diDerent tabs doesn’t aDect this. Google Analytics simply sees a Lectures on CRM. A system engineering perspective Maximilian Nicolae string of pages being viewed in chronological order, without any reference to multiple tabs or windows. New Visitor A visitor who did not have Google Analytics cookies when they hit the first page in this visit. If a visitor deletes their cookies and comes back to the site, the visitor will be counted as a new visitor. Returning Visitor A visitor with existing Google Analytics cookies from a previous visit. Dollar Index A measurement of how influential a page is to conversion. The higher the number, the more frequently it was viewed prior to a purchase or conversion. It’s calculated by taking the goal conversion value or transaction value of a visit and applying it evenly to all the pages prior to that conversion. Seen in aggregate, it just attempts to correlate pages to conversions. Pages/Visit Pageviews divided by visits. This metric shows the average number of pages viewed per visit. Direct TraCic Ideally, this is the traDic that came to a site via bookmarks or by directly typing in the URL. In reality, it is the traDic for which the code couldn’t determine a source. Depending on the site and the browser, some links may not show a referrer and instead would be categorized as direct. Using campaign variables will get around this misrepresentation every time. Referring Sites This is traDic for which (1) a referrer was identified, (2) the referrer is not a search engine and (3) there are no campaign variables. The referring URL (a.k.a. the page that contains the link to your website) is also stored for referrals. Search Engine TraCic Google Analytics automatically categorizes traDic as coming from a search engine if the referring URL is from its list of known search engines and there is a search term identified in that URL. Both organic and paid search engine traDic is put into this group. Event Tracking A feature that allows you to track visitor activities separately from pageviews. This is commonly used to track interaction with AJAX or Flash content. Google Analytics API The API extracts data from Google Analytics accounts. It allows customers to programmatically extract Google Analytics data and incorporate it with 3rd party applications and/or databases. Customer Relationship Management CRM Maximilian NICOLAE, Room ED303 [email protected] Customer Relationship Management (introductory free debates) Companies’ main objective? “The Goal” written by Eliyahu Goldratt The main goal is to make money (profit)! What about non for-profit companies? This could be more like a speculation Customers vs Clients. (“custom” vs the Latin ”cliens” – dependent) Product vs Service (in terms of delivery) Product-service mix After sale (including customer support) Profit = Customers? Customers: First comers Repeated customers Advocates Cost involved in attracting a first customer vs an existing client that could become a repeated customer? customer lifetime In the end we need customers… value “Good” clients What “good” means? How much could a customer value for us? Core functions of a business Core functions of authorized persons or crafts?! Marketing (sales) Operation [New] Product (service) development “Support” functions: Finance Accounting Human resources “Front desk” Marketing Sales Customer support Working example: “Front desk” for universities ☺ The impact of pandemic on working and delivery process (debate) Customer Relationship Management (trying a definition from commonsense) Defining each word What are relationship when we are referring to people? People – humanity What kind of relation with clients we expect in a digital enterprise? Waste reduction Waste management What do we designate by waste? Is there such thing as time waste? ☺ Are redundant activities a waste of time? (redundant vs repeated) Homework Human need not apply! Accessible at: https://www.youtube.com/watch?v=7Pq-S557XQU&t=5s Write a short essay (half a page long) regarding your opinion about the video, preferably (where possible) with references to your current job (without violate the GDPR requirements ☺) Lectures on CRM. A system engineering perspective Maximilian Nicolae Prologue A Journey into Understanding Customer Relationship Management (CRM) Customer Relationship Management (CRM) is one of the most frequently discussed terms in the business world. Almost every professional, from marketers to engineers, managers to IT specialists, talks about CRM. But here lies an interesting challenge: ask five diIerent professionals what CRM is, and you might get five diIerent answers. This divergence stems from the fact that CRM has evolved dramatically over time, adapting to technological advancements and shifting business models. As such, one of the primary objectives of this course is to delve deeper into what CRM was, what it is today, and what it is capable of becoming. We will try to develop an exploratory journey, examining the evolution, mechanics, and future of CRM through a system engineering lens. This will help us move beyond the basic definitions and understand CRM as an interconnected, dynamic system that drives customer interactions and business growth. CRM and the Objectives of Business: Profit and Beyond At its core, CRM is tied to the very objectives of a business. Most companies operate with one primary goal: to generate profit. A business must sell its products or services eIiciently and at a cost lower than its revenue to thrive. CRM plays a vital role in achieving this goal by helping businesses manage customer interactions, build long-term loyalty, and streamline sales processes. However, in the case of non-profit organizations, the focus shifts. These entities may not seek profit, but they still need to maintain relationships with stakeholders such as donors, volunteers, or service users (designated as beneficaries). For both types of organizations, CRM helps manage these relationships eIectively, ensuring objectives— be they financial or mission-oriented—are met. This brings us to the next essential point: who are these customers, and what makes them important? Customer vs. Client: Understanding Relationships The term customer has a long history, rooted in the word "custom", which refers to a habit or practice. A customer is someone who habitually purchases or uses a product or service. On the other hand, the term client originates from the Latin "cliens," meaning Lectures on CRM. A system engineering perspective Maximilian Nicolae dependent. A client depends on a service provider for ongoing support, often in a professional capacity (e.g., legal or financial services). In modern CRM, both terms carry significance. Customers might make repeat purchases, while clients rely on long-term service relationships. This distinction helps businesses understand how to cater their strategies to diIerent types of relationships, each requiring distinct approaches in management and support. From this point, we can begin to understand how CRM serves not just sales teams but is a pivotal system that touches multiple facets of business operations. The Product-Service Mix: Expanding Beyond the Sale Today, businesses are rarely focused solely on selling either products or services in isolation. Instead, we often see a blend of both, called the product-service mix. This mix involves not only the initial sale but also the accompanying services, which enhance the overall customer experience. After-sales services—such as warranties, repair services, and customer support—have become integral to maintaining long-term customer satisfaction. For example, when a customer buys a car, the transaction doesn’t end with the sale. The car manufacturer continues the relationship by providing maintenance services, upgrades, and customer support, ensuring the customer remains satisfied and loyal. This can be illustrated in relatable terms through an example close to the our experience: An Ideal University Front Desk: A CRM in Action Think of your interactions with a university’s administrative oIice. How would you design the perfect front desk? Most likely, you would expect quick responses, accurate information, and personalized service. A university’s front desk is essentially a CRM system for students—managing inquiries, providing services, and ensuring that each interaction runs smoothly. In this context, you’re both the "customer" and the "client," expecting eIicient management of your needs. But, wait, are we talking about not for profit organisation?! This product-service mix, whether in a business or an academic setting, requires continuous attention and optimization—a crucial function of CRM systems. Lectures on CRM. A system engineering perspective Maximilian Nicolae The Impact of the Pandemic: Rethinking CRM The COVID-19 pandemic profoundly altered business operations, forcing companies to adopt remote working models and rethink their customer service and delivery processes. Businesses had to pivot quickly, with CRM systems becoming more critical than ever. For instance, customer interactions shifted from in-person visits to virtual meetings, online shopping, and contactless deliveries. Reflect on your own experiences—did you face delays in delivery services or changes in how customer support was oIered? Many companies enhanced their CRM capabilities to accommodate these changes, automating more processes, improving online communication, and ensuring seamless service delivery. From a systems engineering perspective, these changes illustrate how CRM can adapt to crises and maintain continuity in customer relationships, ensuring businesses remain resilient. Defining CRM: Breaking Down the Components While the history of CRM is important, it’s also essential to understand why this term has persisted and evolved over time. Let's break down each component: Customer: The individual or organization a business serves. This term encompasses anyone who purchases or uses a product or service. Relationship: A relationship goes beyond mere transactions—it’s about building trust, loyalty, and engagement over time. CRM systems help businesses develop and nurture these relationships through targeted interactions and personalized experiences. Management: The key to CRM is systematic management. This involves organizing, automating, and optimizing every interaction a customer has with a company. CRM tools manage vast amounts of data, track customer histories, and ensure eIicient communication. Rather than viewing CRM as a software solution, we should see it as an evolving system that integrates technology, processes, and human interactions to optimize the customer journey. Lectures on CRM. A system engineering perspective Maximilian Nicolae Customer Relationships in a Digital Enterprise In today's digital era, customer relationships are increasingly managed through advanced technologies. Many companies now rely on CRM systems that integrate automation, AI-powered chatbots, and data analytics to manage customer interactions. But how do these technologies influence relationships with clients? As companies digitize their operations, it becomes vital to understand how automation aIects customer satisfaction, trust, and engagement. For example: Are personalized services still possible when AI-driven bots handle customer queries? How do businesses maintain trust when most interactions are virtual, with minimal human contact? These are the types of questions that CRM systems aim to answer by continuously adapting to the digital landscape. Waste Reduction and Waste Management in CRM Systems EIiciency is a central theme in CRM, and one key focus is reducing waste in processes. Waste in this context refers to ineIiciencies—whether in terms of time, resources, or labor. By identifying and eliminating redundant activities, companies can streamline their operations and improve customer satisfaction. For instance, consider redundant tasks, like manually inputting customer data, which could easily be automated using a CRM system. By eliminating redundancy, CRM systems free up valuable time and resources. At the same time, repeated tasks, like regularly following up with customers, need to be optimized for eIiciency without becoming wasteful. This is where Robotic Process Automation (RPA) comes into play. RPA allows businesses to automate routine processes, such as scheduling follow-ups or updating customer profiles, making CRM systems even more eIicient. Setting the Stage for CRM Exploration As we move forward in this course, our goal will be to dive deeper into the technical, operational, and strategic components of CRM. We will explore how CRM systems can adapt to the evolving needs of businesses and customers alike. Lectures on CRM. A system engineering perspective Maximilian Nicolae This exploratory approach to CRM will reveal that it is more than a tool for managing customer data. It is a comprehensive strategy for improving business operations, reducing waste, and enhancing customer relationships. Service Engineering and Management Service Operation and Customer Relationship Management An Introduction to Operations and Operations Management Maximilian Nicolae [email protected] Room ED303 Agenda ❑Course content (SOM – 70%) ❑The Approaching ❑Modelling Considerations ❑Defining operations and operations management ❑Products vs. Services ❑Supply Network ❑Characteristics of operations processes ❑Responsibilities of operations management and operations managers Course content Part I (70%)- Service Operations Management ✓ An introduction to operations and operations management ✓ From strategy to operations and vice versa. Operations as an implementation and driver for strategy ✓ Operations in the process of developing new products and services ✓ Designing the operation process. Layout and flow ✓ Capacity management ✓ Managing operation flow ✓ Quality and quality management ✓ Operations performance evaluation and improvement ✓ Improving services with lean six sigma ✓ World class and ethics in service operation The Approaching “Best practice” approach [sla07],[bro01] Tools from other domains [sal01] Service Engineering [geo03],[geo05] Positive examples -> Negative examples Systemic (process) approach The operation is the main way of honoring the marketing’s promises The general idea The operation is what the organization does and not what it should do. Examples of operations management: – Operating Systems – Operations in War Theaters Modelling Considerations Modelling Considerations Defining operations and operations management The operation is related to the way the organization produces or delivers its outputs. The operations management, as stated in [sla07], is the activity of managing the resources that are intended to the production and delivery of products and services. Defining operations and operations management Core functions: – Marketing – Operations – Product/Service Development Support functions – Finance and accounting – Human Resource Defining operations and operations management Defining operations and operations management Defining operations and operations management Products vs. Services Characteristics: – Tangibility – Customer contact – Ownership – Quality verification – Resale – Demonstrability – Storability – Simultaneity of production with consumption Products vs. Services Services and products are merging All operations are seen as service providers Supply Network Characteristics of operations processes Task (manufacturing ->service) Volume Variety Variation (of demand) Visibility Environment Position in Supply Network Characteristics of operations processes Responsibilities of operations management and operations managers Assimilating the organization’s strategic objectives Conceiving and improving an operations strategy for achievement of organization’s objectives Designing the operation processes for production and delivery of products and services Responsibilities of operations management and operations managers Planning and controlling the operations Defining criterions of operations’ performance and improving the results Adapting operations according to the new world context Today pressures on OM Globalization, as a form of easiness to be competed by international companies. Employment, by an active participation to integrate and develop human resource. Ethics, as a form of social responsibilities. Environment awareness and protection. Information technology and communication, with artificial intelligence (AI) playing a pivotal role in transforming operations. In [nor02]: “Contrary to popular belief, getting to know customer requirements is not very difficult… Any customer, in any industry, in any market wants stuff that is both cheap and better, and they want it yesterday. Organizations may spend millions of dollars every year getting … [consultancy companies]… to help them answer this question. But the simple truth is that the typical customer will always ask for improvements within the present frame.” References [bro01] Brown, S., Blackmon, K., Cousins, P., Maylor, H., 2001. Operation Management: Policy, Practice and Performance Improvement, Butterworth-Heinemann. [geo03] George, M.L., 2003. Lean Six Sigma for Service: How to Use Lean Speed and Six Sigma Quality to Improve Service and Transactions, McGraw-Hill. [geo05] George, M.L., et al., 2005. The Lean Six Sigma Pocket Toolbook: A Quick Reference Guide to Nearly 100 Tools for Improving Process Quality, Speed, and Complexity, McGraw-Hill. [nor02] Nordstrom, K., Ridderstrale, J., 2002. Funky Business. Talent makes capital dance, BookHouse Publishing AB. [sal01] Salvendy, G., Editor, 2001. Handbook of Industrial Engineering. Technology and Operation Management. Third Edition, John Wiley & Sons. [sla07] Slack, N., Chambers, S., Johnston, R., 2007. Operation Management, Fifth Edition, Prentice Hall. Maximilian Nicolae - Service Operations Management from System Engineering Perspective Chapter 1 - An Introduction to Operations and Operations Management 1.1 An Introductory Approach The primary objective of this chapter is to define “operations,” a term that, like many frequently used concepts, can be diFicult to pin down due to its broad usage and various interpretations. Typically, operations refer to the execution of a function, with “function” being another fundamental but elusive term to define precisely. As we will see later, operations are considered one of the three core functions within an organization, alongside marketing and product or service development, as noted in [sla07]. If we think of marketing as the outward-facing aspect of a business (often driving growth, though not necessarily profitability), operations represent the organization’s commitment to delivering on marketing’s promises. In [bro01], the concept of operations is illustrated through the metaphor: “operations are where the rubber meets the road.” Essentially, operations encompass what the organization actually does, rather than what it should aspire to do. A useful example of the interaction between marketing and operations can be seen in the competition between Microsoft and Google, specifically in the context of their operating systems (OSs). We will revisit this example when discussing operations strategy, but it is relevant here to note the contrast. Microsoft, known for its aggressive marketing, has not always succeeded in fully delivering on its promises. On the other hand, Google tends to attract customers through strong operational performance, with fewer unmet customer expectations. Despite their diFering approaches, both companies continue to generate significant profits and consistently innovate, launching new products and services— some of which succeed, while others fail. To better grasp the complexity of operations, it may be helpful to draw analogies from two fields with which most people are somewhat familiar. First, the field of computer science, particularly in how operating systems function; and second, military operations in theater. Both areas oFer valuable insights into the structured, dynamic, and multifaceted nature of operations within organizations. 1.2 Modeling Considerations This section is not meant to provide a rigorous, in-depth exploration of modeling but to highlight why modeling is a powerful tool for those who understand its advantages and know how to work eFectively with it. Even though childhood is evolving in today’s technological era, many of us can recall one of the first models we ever engaged with— An Introduction to Operations and Operations Management the paper airplane. We learned how to design, modify, and optimize it for better performance without facing significant risks or costs. This basic principle of modeling— trial, adjustment, and optimization—is also illustrated in Figure 1.1. Measure Abstract Conversions Structures Organization & Tools Real Life Virtual World Interpret / Act Figure 1.1. Modeling concept as a tool for operations The concept in Figure 1.1 oFers a perspective on the people involved in shaping an organization’s strategy. Although we will delve into operations strategy and the strategic role of operations in the next chapter, this visualization provides a glimpse of how critical it is for these individuals to have a thorough understanding of the organization’s day-to- day workings (i.e., real-life experience) while also recognizing which tools can oFer them a “competitive advantage,” a term popularized by Michael Porter. The basic model often used for both operations and organizations is the “Inputs- Transformation Process-Outputs” framework, depicted in Figure 1.2. Many books include feedback mechanisms in this model, and authors such as [bro01] and [sla07] propose more complex variations by highlighting specific aspects not immediately apparent in the basic model. However, none of these derived models have become standardized yet. Transformation Outputs Inputs Process Figure 1.2. “Inputs - Transformation Process – Outputs” Model Transformation Suppliers Inputs Outputs Customers Process Figure 1.3. Extension of “Inputs - Transformation Process – Outputs” Model Maximilian Nicolae - Service Operations Management from System Engineering Perspective From a systems engineering perspective, this model is particularly convenient as it reflects a simple input-output structure. If feedback loops are incorporated, they are typically internal to the system’s representation. However, if feedback is gathered through customer experience, the model should also account for the customers and, similarly, the suppliers. Figure 1.3 illustrates the distinction between internal feedback and external feedback. For instance, customer feedback (e.g., through surveys) could be seen as input from suppliers in certain contexts, especially in organizations that rely on external evaluations. Likewise, the quality of outputs might be assessed by specialized third-party organizations, feeding back into the system, not directly through customers but through suppliers. When considering inputs, it’s essential to account for all types of resources—raw materials, financial assets, information, technologies, and people (including both customers and staF). The transformation process can aFect various properties of these inputs. While structural, physical, and chemical transformations are more common in manufacturing contexts, we should also acknowledge other properties relevant to services, such as location, ownership, health conditions, education, and other human characteristics. 1.3 Defining Operations and Operations Management As discussed earlier, operations relate to how an organization produces and delivers its outputs. According to [sla07], operations management is the activity of managing the resources intended for the production and delivery of products and services. Every organization has multiple functions, some of which are critical to its core operations, while others serve to enhance and support these primary functions. Consider the common example of a sole proprietor or craftsperson. They must create a product or provide a service, which constitutes their core operational function. However, they also need to promote their services, which can be seen as a marketing and sales function. In [sla07], these functions are classified as “core functions.” In addition to marketing and operations, there is the product (or service) development function, which is responsible for creating or modifying products or services. Functions like finance, accounting, and human resources are considered “support functions.” To better understand this classification, we can look at small family-owned businesses. Support functions tend to be more standardized across industries, meaning they operate similarly in many diFerent sectors. In contrast, core functions vary significantly depending on the business sector. Table 1.1 provides examples of activities associated with core functions in various types of organizations. In practice, there are often no clear boundaries between an organization’s functions, and it is common for functions to overlap. This overlap can be seen as an opportunity, as many value-added decisions arise from these intersections. For example, in the context An Introduction to Operations and Operations Management of modeling, it is highly advantageous when individuals have competencies in both “real- world” operations and the “virtual” realm of models and simulations. Figure 1.4 uses Venn diagrams to illustrate the intersections between diFerent functions within an organization. Each function is typically the subject of specialized courses in economic or business education programs, with comprehensive materials dedicated to each. Although support functions are often presented as central within their respective domains, here we will not approach the operations function in isolation. Instead, we provide examples of the information flow between the operations function and other functions in Table 1.2, with arrows indicating the direction of this flow. Table 1.1. Examples of activities related to core functions Product/ Organizations Examples Operations Marketing service development Maintenance Repairing, Promotional For Car repair and repairing of Maintenance, services for Profit workshop newer car Services Logistics, etc. loyal customers models based New study Not For Education Educating, Attract funds courses and Profit organization Training, etc. programs Manufacturing Producing Advertising and New phone Phones Factory based phones Price policies models design Core Function B Core Function A Support Core Function D Function C Support Function E Figure 1.4. Intersections between organization’s functions Maximilian Nicolae - Service Operations Management from System Engineering Perspective Table 1.2. Information flow between organization’s functions Product/ Human Operation Marketing Finance Service dev. resources Customer requirements Designs of in terms of Financial Skilled Operation new products quality, indicators workforce and services deliverability, etc. Customer Product/ Process Skilled needs and Budget Service dev. features workforce requirements New Financial Process products and Skilled Marketing performance capabilities services workforce objectives outlines Required Estimated Estimated Skilled Finance data budget incomes workforce Skills and Skills and Skills and Skills and Human capacity capacity capacity capacity resources needed needed needed needed 1.4 Products vs. Services The distinction between products and services continues to spark debate, particularly in industries like software, where some applications are considered products (e.g., software sold on hardware) while others are classified as services (e.g., software delivered via the internet). According to the “inputs-transformation process-outputs” model, the features of the output determine whether it is a product or a service. Two commonly used criteria for classification are tangibility and the level of customer contact. It’s easy to understand that products are tangible, whereas services are intangible. Additionally, customer contact tends to be present in services but often absent in product transactions. Other distinguishing factors include ownership, quality verification, resale potential, demonstrability, storability, and whether production and consumption happen simultaneously. In [sla07], the merging of products and services is discussed, where all operations are increasingly viewed as service providers. Even when organizations manufacture products, their ultimate goal is to serve the customer. In practice, the outputs of most operations represent a blend of both products and services. Whether an organization leans more toward products or services depends heavily on its business strategy. An Introduction to Operations and Operations Management For instance, a company that begins by manufacturing products may eventually oFer after-sales services such as training or consulting to better serve its customers. On the flip side, a service-based company might start producing its own products to improve the eFiciency or quality of its service delivery. This evolution is illustrated in Figure 1.5, where pure products and pure services are positioned at opposite ends of a spectrum, with most organizations falling somewhere in between. Products & Services Quasi- Mixed manufacturing services Only products Only services Figure 1.5. Tuning the product-service mixture A significant observation is the evolution of human resource involvement in these two sectors—manufacturing and services. As noted in [bro01], in the 1880s, only 1 in 20 people worked in services, while today that ratio has shifted to 3 in 4. This shift highlights the growing importance of services in the modern economy. 1.5 Supply Network The transformation process described in the “inputs-transformation-process-outputs” model can be broken down into a series of smaller sub-processes, each following the same input-output structure. These interconnected sub-processes form a network or graph, as illustrated in Figure 1.6. This creates a similarity across three levels of analysis: the supply network (at the business level), operations (at the organizational level), and individual processes. There has been ongoing debate about whether issues at these diFerent levels should be approached uniformly. One argument against this uniform approach is that the business level operates in a free market, while at the process level, processes cannot easily choose between suppliers and clients. However, with the shift toward viewing processes as open systems (rather than closed), and the increasing use of concepts like “outsourcing” and “service externalization,” many modern businesses have adopted a more uniform approach to operations management. Maximilian Nicolae - Service Operations Management from System Engineering Perspective Supplier Business A X1 Customer A Business A1 Supplier B Business Business Customer B A2 Xi Supplier C Business An Customer Y Supplier Business X Xm Transformation Inputs Process Outputs PC PA PB PD PE Figure 6. From Supply Network An Introduction to Operations and Operations Management Figure 1.6 oFers a way to view all business functions as a system of interconnected processes. Operations, in this context, can be understood both as a specific function within the organization and as the overarching activity of managing the organization’s various functions. As argued in [sla07], operations management is a responsibility that spans across all functions, meaning that all managers—regardless of their specific areas—can be considered operations managers. The key takeaway here is that every manager, regardless of their functional area, must have a solid understanding of the approaches, concepts, and tools used in operations management. This is essential for eFectively managing and optimizing the interconnected processes that drive the organization’s overall performance. 1.6 Characteristics of Operations Processes Although we aim to abstract and model business activities and processes for the virtual world, these processes have distinctive characteristics that require diFerent approaches. Among these characteristics, some are considered more critical. In [sla07], four key characteristics, known as the “Four Vs,” are identified: 1. Volume of outputs, 2. Variety of outputs, 3. Variation in demand for the outputs, 4. Visibility of the process from the customer’s perspective. The first three—volume, variety, and variation—are directly related to the outputs, and their meanings are fairly intuitive. However, the fourth, visibility, requires further clarification. The term “visibility” refers to how the customer interacts with or perceives the business process. If customers only engage with the product after production or, in the case of services, during the service provision without actively influencing it, this is considered low visibility. Conversely, high visibility occurs when customers play a more active role in the production of services or products—through customization, detailed feedback, or requiring prompt and tailored services. In [bro01], additional characteristics are discussed that closely align with the “Four Vs.” These include the nature of tasks (manufacturing or service-related, which can be compared to visibility), the volume/variety ratio, the environment (e.g., hyper-competitive or niche markets, similar to demand variation), and the organization’s position in the supply network (supplying end customers or acting as an intermediary). Upon closer inspection, correlations between these characteristics become apparent. For instance, an operation producing a high volume of outputs will likely have less variety. These characteristics are often used to analyze business operations by plotting them within a characteristic space. Figure 1.7 illustrates how operations can be profiled based on these factors. By selecting relevant characteristics and using methods such as shading or marking, businesses can trace the unique profile of their operations. Maximilian Nicolae - Service Operations Management from System Engineering Perspective Tangibility of outputs Volume of outputs Variety of outputs Competition Distance to end users Contact with customers Figure 1.7. Operations profiling 1.7 Responsibilities of Operations Management and Operations Managers As discussed earlier, in real organizations, the boundaries between functions are often blurred. Consequently, all functions can be viewed through the lens of operations, and each manager can be seen as having operational responsibilities. However, if we focus specifically on what we have defined as operations management, the key responsibilities are as follows: Aligning with the organization’s strategic objectives. Developing and refining the operations strategy to achieve those objectives. Designing the processes for producing and delivering products and services. Planning and controlling day-to-day operations. Defining performance criteria and continuously improving outcomes. Adapting operations to the evolving global context. These responsibilities will be explored in greater detail throughout this book. For now, they are intuitive without needing much elaboration, though the last responsibility merits a bit more attention. In [bro01], the “new world context” is examined through the lens of today’s pressures on operations management, which include: o Globalization, which makes it easier for international companies to compete. An Introduction to Operations and Operations Management o Employment, with an emphasis on actively integrating and developing human resources. o Ethics, particularly in terms of corporate social responsibility. o Environmental awareness and sustainability. o Information technology and communication, with artificial intelligence (AI) playing a pivotal role in transforming operations. In fact, AI has become a significant force in operations management. It aids in predictive analytics, allowing operations managers to forecast demand more accurately, optimize supply chains, and make real-time adjustments. AI also enables the automation of repetitive tasks, improving eHiciency and freeing human resources for more strategic roles. Moreover, by analyzing vast amounts of data, AI helps operations managers respond to customer demands faster, ensuring better customization and enhancing the overall customer experience. The last pressure—information technology, with a strong emphasis on AI—can be a decisive factor for successful operations managers today. Referring back to Figure 1, which introduced the concept of modeling and the tools available in the “virtual world,” it becomes evident why an operations manager skilled in AI, Systems Engineering, and Computer Science could be a strong alternative to one with a purely economic background. In both engineering and economics, a common approach is to think in terms of performance objectives. History shows us how these objectives have evolved. Initially, minimizing cost was the primary goal. Then, quality was introduced, and the objective shifted to maximizing the quality-cost ratio. Over time, more sophisticated objectives emerged, such as continuous innovation, time-to-market, speed-to-market, mass customization, and agility. Today, it’s hard to imagine any business not leveraging the Internet, even in manufacturing. Competitive pressures and legal frameworks often require organizations to provide after-sales support, making operations management crucial for business success. Operations managers are tasked with balancing customer demands and organizational goals. We will conclude this chapter with a quote that captures the essence of customer expectations, to which operations must respond [nor02]: “Contrary to popular belief, getting to know customer requirements is not very diFicult… Any customer, in any industry, in any market wants stuF that is both cheap and better, and they want it yesterday. Organizations may spend millions of dollars every year getting [consultancy companies] to help them answer this question. But the simple truth is that the typical customer will always ask for improvements within the present frame.” Maximilian Nicolae - Service Operations Management from System Engineering Perspective References [bro01] Brown, S., Blackmon, K., Cousins, P., Maylor, H., 2001. Operation Management: Policy, Practice and Performance Improvement, Butterworth- Heinemann. [nor02] Nordstrom, K., Ridderstrale, J., 2002. Funky Business. Talent makes capital dance, BookHouse Publishing AB. [sla07] Slack, N., Chambers, S., Johnston, R., 2007. Operation Management, Fifth Edition, Prentice Hall. Maximilian Nicolae - Service Operations Management from System Engineering Perspective Chapter 2 From Strategy to Operations and Vice Versa: Operations as a Driver and Implementation of Strategy 2.1 Strategy and Strategic Management “Strategy” is a frequently used term with roots in the military, often regarded as an art. It is defined as the art or science of planning and conducting a war or a long-term plan for success, especially in business or politics [col03]. Given that strategy often covers broad areas with loosely defined boundaries, defining strategic management can be challenging. A noteworthy attempt at this is made in [nag07], which uses the analogy of a defendant unsure how to define pornography but claiming to know it when he sees it. Similarly, strategic management has often been debated, with each discipline claiming a central role in organizational success, much like the intersection of all organizational functions. In [nag07], a historical collection of strategic management definitions is presented, beginning with the concept of “business policy” from 1965. This early definition focused on analyzing the functions and responsibilities of general management and the factors that contribute to an organization’s overall success. By 1979, strategic management was defined as a process that renews and develops the organization, formulating strategies to guide its operations. Later definitions added the consideration of internal and external environments to identify competitive advantages, emphasizing the alignment of operations with strategy to maximize resource utilization. After a thorough review of various definitions, [nag07] provides the following definition of strategic management: ”The field of strategic management deals with a) the major intended and emergent initiatives b) taken by general managers on behalf of owners, c) involving utilization of resources d) to enhance the performance e) of firms f) in their external environments.” This definition is based on practitioners’ views rather than prescriptive concepts of what strategic management “should” be. From Strategy to Operations and Vice: Operations as a Driver and Implementation of Strategy Professor Michael Porter, a renowned authority on organizational strategy, distinguishes between operational eXectiveness and strategy in his article “What is Strategy?” [por96]. He argues that modern management tools and techniques have replaced true strategy, pushing organizations away from sustainable competitive positions. Porter emphasizes that the essence of strategy is performing diXerently from competitors, rather than merely adhering to “best practices.” He suggests that strategy defines an organization’s position, necessitates trade-oXs, and aligns activities accordingly. Porter also advises that organizations should position themselves where competitive forces are weakest [por08]. These forces include: Supplier power (force) – the influence suppliers exert through their trading power. Buyer power (customer’s force) – the motivation and bargaining strength of customers. Competitive rivalry – the pressure from existing competitors. Threat of new entrants – the potential for new competitors to enter the market and increase supply. Substitute products (surrogates’ force) – the availability of alternative products or services that reduce demand. While Porter’s focus is on positioning and competition, Mintzberg [moo11] introduced a more flexible view, stating that strategy could emerge organically from operational decisions rather than being strictly planned in advance. In [bro01], strategy is distilled into three key objectives: Satisfying customers, Optimizing resource use (including external resources through alliances), Developing superior capabilities. 2.2 From Strategy to Operations In business, if our primary responsibility is operations, we derive our objectives from the strategy set by the organization. Our task is to implement these objectives through operational processes, eXectively translating strategy into action. Over time, many tools and techniques have been developed to assist and enhance operations. Originally rooted in manufacturing, these methods have since been adapted for the service industry as well. One of the seminal works on this evolution is The Machine That Changed the World [wom90], which draws on a study by MIT about the future of the automobile industry and outlines the development of lean principles. Historically, the first form of production—whether in manufacturing or services—was craft production. It was characterized by highly skilled workers using multifunctional tools, which oXered flexibility but resulted in expensive products or services. To address Maximilian Nicolae - Service Operations Management from System Engineering Perspective the high costs associated with craft production, mass production emerged. Mass production relied on narrowly skilled specialists who designed processes and tools that could be operated by less skilled workers. These workers, in turn, used highly expensive, single-purpose tools. The result was the production of cheaper goods and services, but with a high degree of standardization, leading to reduced variety. A collateral issue was the monotonous and unfulfilling nature of the work for employees. Mass production also introduced a challenge: the underutilization of costly equipment, as these machines needed to be running constantly to justify their expense. To maximize utilization, batch production was adopted, taking advantage of economies of scale. However, this approach proved problematic, as it led to increased inventory costs. To mitigate this, capacity management and the Just-In-Time (JIT) approach were developed, with the latter being closely aligned with the Theory of Constraints. This concept is eXectively explained in The Goal: A Process of Ongoing Improvement by Goldratt [gol04], which describes how optimizing the use of bottleneck resources improves the flow of operations. To overcome the limitations of both craft and mass production, the Lean concept was developed. Lean production combines the strengths of both approaches—flexibility from craft production and eXiciency from mass production—while mitigating their respective disadvantages. Henry Ford was a pivotal figure in this evolution. He was the first to recognize the drawbacks of craft production and is credited with introducing mass production on a large scale, revolutionizing industry and setting the stage for modern operational methods. 2.3 From Operations to Strategy Thus far, we have seen how operations are typically viewed as the execution mechanism for strategy, turning strategic objectives into reality. This perspective treats operations as closed systems within the organization, playing no direct role in shaping the organization’s strategy. However, some authors argue that the relationship between strategy and operations goes deeper. For instance, in [hay84], a four-stage model is proposed (Figure 2.1), highlighting the dynamic relationship between operations and strategy. The stages are determined by two factors: 1. The organizational environment (internal or external knowledge). 2. The influence of operations on strategy (neutral or supportive). These four stages are represented as follows: From Strategy to Operations and Vice: Operations as a Driver and Implementation of Strategy Supportive Stage IV Stage III Stage I Neutral Stage II Figure 2.1. Four stages diagram Stage I (Internal Neutral): At this stage, competitiveness is derived from product/service design and marketing eXorts. The role of operations is simply to execute, producing the goods or services as designed and adhering to marketing’s volume demands. Operations only attract attention when there is a failure in execution. In this case, operations are neutral, meaning they do not negatively impact the strategy but do not actively contribute to it either. Stage II (External Neutral): Here, operations are tasked with seeking external “best practices” to align with industry standards. The goal is to achieve parity with competitors in performance and supplier relationships, thereby increasing the organization’s profitability. Even though operations look outward, this stage is still considered neutral, as operations merely ensure they do not hinder strategic objectives. The focus is on eXiciency (doing things right) rather than eXectiveness (doing the right things). Stage III (Internal Supportive): In this stage, operations begin to play a more active role in shaping strategy. The relationship between operations and strategy becomes bidirectional: operations provide competitive advantages that influence strategic decisions. In this stage, operations are considered supportive, actively contributing to the organization’s competitive edge. Stage IV (External Supportive): At this final stage, operations become the primary driver of strategy. The organization’s competitiveness stems directly from its operational capabilities. The focus is on excelling in its domain through world-class operations and continuous improvement. This approach embodies the concept of “world-class” organizations, where operational excellence shapes strategic direction. Maximilian Nicolae - Service Operations Management from System Engineering Perspective While Stage IV, in which operations dominate strategy, has its critics—particularly those who argue that marketing should remain the primary driver of competitiveness—there are modern frameworks that align with this view. For example, M. Porter’s earlier analysis [por96], [por08] presents an argument worth considering, where operational eXectiveness and strategy are distinct but complementary. Modern approaches, where operations play a pivotal role in competitiveness, include: Flexible Specialization (Flexibilism or Post-Fordism): This concept counters Henry Ford’s mass production model, focusing instead on flexibility and customization. Small companies specialize in specific components and collaborate in clusters to produce better products and services, prioritizing adaptability over economies of scale. Mass Customization: This approach seeks to combine the advantages of mass production with product variety, allowing for customization while maintaining the cost benefits of large-scale production. Lean Production: Popularized by [wom90], lean production focuses on waste elimination throughout the operations process. Agility: Agility emphasizes speed and responsiveness, allowing organizations to adapt quickly to changing market demands. Strategic Operations: A more formal description of Stage IV, where operations actively shape and drive strategic decisions. 2.4 Performance Objectives of Operations According to [sla07], there are five basic performance objectives of operations: Quality: Quality can be defined in various ways, often from the customer’s perspective. Importantly, this customer may not always be external to the organization. Consider the supplier network model, which diXerentiates between the operations network and the processes network (as illustrated in Figure 1.6, Chapter 1). For example, Toyota’s commitment to quality is evident in its famous Toyota Production System, which emphasizes continuous improvement (Kaizen) and rigorous quality control measures. Speed: This objective refers to how quickly an organization can deliver the products or services requested by customers. For instance, Amazon’s investment in logistics and distribution centers enables rapid order fulfillment, allowing them to oXer same-day or next-day delivery in many locations, significantly enhancing customer satisfaction. Dependability: Dependability is the ability to adhere to scheduled deliveries for both internal and external clients. While speed helps plan delivery times, dependability ensures that those commitments are met. For example, without using companies’ names, there are some renowned for their reliable delivery From Strategy to Operations and Vice: Operations as a Driver and Implementation of Strategy services, which have made them leaders in the logistics industry. The company’s commitment to meeting delivery deadlines is crucial for its customers, particularly in time-sensitive industries. Flexibility: This refers to the capability of operations to adapt their characteristics concerning outputs (such as type and volume) and processes (including duration and transformed inputs). A key factor in maximizing flexibility is the eXective utilization of IT and communication infrastructure. The combination of high flexibility with high speed is essential for achieving agility. For instance, some fashion wearing companies employ a flexible supply chain that allows it to rapidly respond to fashion trends, adjusting production quantities and styles based on real-time customer feedback. Cost: Cost considerations are integral to nearly all operations. Companies like Walmart have built their business model around keeping operational costs low, allowing them to oXer competitive pricing while maintaining profitability. Their extensive use of technology and eXicient supply chain management contributes to this objective. There are correlations among these basic performance objectives. For instance, while enhancing quality may increase costs, it can also lower them by eliminating expenses associated with faulty products and services provided to customers, including those internal to the processes network. Similarly, improving speed can reduce costs—such as inventory expenses—and, in critical cases like healthcare, can save lives. These correlations can be explored for all performance objectives. A commonly used measure of operational eXiciency is productivity, defined as the ratio of certain output characteristics of a process to the corresponding input characteristics required for transformation. It quantifies the output generated per unit of input. Common types of productivity include labor productivity and multifactor productivity (as shown in Figure 2.2). Labor productivity measures the amount of output produced by a worker over a specified period, using inputs such as the number of workers, job hours, etc. Multifactor productivity incorporates a combination of expenditures on materials, labor, capital, and more as inputs. Output Productivity = Input Output Labor productivity = Labor Inputs (workers, hours, etc.) Output Multifactor productivity = Operation’s expenditures (Labor, Capital, etc.) Figure 2.2. Productivity formulas Maximilian Nicolae - Service Operations Management from System Engineering Perspective Productivity is typically measured as an average. However, in practice, we often encounter alternative productivity forms by dividing the outputs of an operation by a single type of input (referred to in [sla07] as single-factor productivity). This approach facilitates comparisons between diXerent operations based on the same input. To enhance productivity, we can either minimize the number of inputs required to achieve the same outputs or improve the utilization of inputs to generate a greater output volume. However, it’s important to note that productivity figures can sometimes be artificially inflated, for example, through a lack of investment. To illustrate the significance of performance objectives within operations, a polar representation can be employed ([sla07]). This intuitive tool (depicted in Figure 2.3) allows for the comparison of operations based on any relevant performance objective. Dependability Operation A Speed Flexibility Operation B Cost Quality Figure 2.3. Polar representation of relative importance of performance objectives In recent years, several trends have emerged in the field of operations management that impact performance objectives: Sustainability: Increasingly, organizations are focusing on sustainable practices that minimize environmental impact while maintaining eXiciency. Digital Transformation: The rise of digital technologies has transformed how operations are managed. Advanced analytics, artificial intelligence (AI), and the Internet of Things (IoT) enable real-time decision-making and improve flexibility From Strategy to Operations and Vice: Operations as a Driver and Implementation of Strategy and speed. For instance, Siemens uses IoT technology in its manufacturing processes to enhance productivity and reduce downtime through predictive maintenance. Customer-Centric Operations: There is a growing emphasis on aligning operations with customer needs. Organizations are leveraging data analytics to gain insights into customer preferences and behaviors, allowing for more tailored oXerings and improved quality. Starbucks, for example, uses customer feedback and data analytics to refine its menu and service delivery. 2.5 Operations Strategy In the introduction of this chapter, we addressed the concept of strategy, highlighting the challenges of defining it. These complexities also apply to operations strategy. Building on our earlier discussion, we can eXectively: 1. Understand the organization’s goals and objectives. 2. Design the operations accordingly. 3. Define and monitor the performance objectives of operations. Above all, we must plan for the long term—a strategy that oXers competitive advantages and enhances operations. In this context, operations strategy can be viewed as a roadmap for the future development of operations and the organization as a whole. There are four primary operations strategies commonly identified in literature: Top-down Strategy: Designed by senior decision-makers (often the owners), this strategy is influenced by various factors, including the owners’ perspectives and the political and social environment. Bottom-up Strategy: Based on operational experiences, this approach can be seen as resource-driven, as it utilizes the knowledge and skills acquired through hands-on experience in operations. Demand-driven (Market-led) Strategy: Rooted in marketing principles, this strategy begins with identifying market opportunities and then plans operations to meet customer needs. While some argue that this should be the sole strategy due to its customer-centric focus, there is considerable debate about the balance between demand and resources. Resource-driven Strategy: This strategy focuses on leveraging the organization’s operational capacity and supplier relationships. As noted by [sla07], these intangible resources can provide significant competitive advantages and shape the corresponding operations strategy. In evaluating these strategies, it is crucial to recognize their advantages and disadvantages. The resource-driven strategy may lead to superior products or services that lack market demand, while the demand-driven strategy could result in ambitious plans that exceed operational capabilities. This gap between vision and operational capacity is frequently encountered in practice. An article titled “Why CEOs Fail: It’s Rarely Maximilian Nicolae - Service Operations Management from System Engineering Perspective for Lack of Smarts or Vision” [cha99] illustrates the strategic importance of operations and the role of operations managers. Many authors contend that a simplistic model for strategy is inadequate. As highlighted in [bro01], “strategy resonance” refers to how world-class organizations blend market- led and resource-driven strategies. A significant aspect of operations strategy is managing trade-oXs between performance objectives. For instance, in a call center, speed (minimizing customer wait times) may conflict with cost (keeping the number of employees low). Operations strategy also involves balancing in-house capabilities against outsourcing options. Another strategic approach involves targeting market leaders at the peripheries of their business portfolios, where they may be vulnerable, before challenging their core business. A prime example of this is Google’s evolution from a search engine to an email service provider and eventually to competing in the operating system sector. With the shift toward smaller, integrated devices—often termed the “disappearing computer”— Google’s strategy appears increasingly viable. The rapidly evolving landscape of IT and communications has transformed the business environment, prompting potential changes to established economic principles. For example, e-commerce has redefined competitive dynamics. It is intriguing to observe how many principles articulated by John Maynard Keynes in his landmark work from 1935, The General Theory of Employment, Interest, and Money [key36], remain relevant today. In contrast, the economic principles underpinning Google’s approach can also be analyzed [gir09]. Focusing on service organizations, as stated in [bro01], they can adopt one of the following strategies: Customer-oriented: This strategy prioritizes satisfying a niche segment by oXering a diverse range of services and developing new oXerings in response to existing customer needs. Service-oriented: This strategy aims to attract a broader client base by providing a limited selection of specialized, high-quality services. Hybrid Approach: This combines both customer and service-oriented strategies. Service organizations often struggle to meet performance objectives consistently. To compensate, they may oXer service guarantees and recovery options. A notable characteristic of service str