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Increasing Service Density to Improve Productivity

April 08 (Wednesday) 2009

Kimura Tatsuya, Research Fellow


  • NAVITIME JAPAN Co. Ltd. and the Kagaya Group were both awarded the “Japan 300 High Service Japan Award” by The Service Productivity & Innovation for Growth (Principal Member: Mr. Jiro Ushio, Chairman of Ushio Inc.) Though the companies provide different services, their methods for improving productivity are similar. Yamato Transport Co. Ltd., creator of the parcel delivery service, also employs such methods. This paper looks at methods for improving productivity based on case studies of these companies.

NAVITIME’s service

Providing a web navigation service using a route search engine, NAVITIME began as a new business venture of the mid-sized air conditioning maker OHNISHI NETSUGAKU Co. Ltd. It became an independent corporation in 2000 and has since launched new services including: (1) railway information (train accidents and delays); (2) a gourmet search function that shows routes to stores; (3) a hospital search function; (4) station maps that show train connection routes; (5) “eco-routes” that suggest routes requiring minimal CO2 emission.

NAVITIME’s technological seed is the route search engine, its first offered service. The services introduced since then have all been based on user needs; NAVITIME’s customer service philosophy is that “all employees are users.”

NAVITIME’s service development and support structures based on user needs come from recognition that having customers use their services is paramount. This mentality also leads to improved productivity, and NAVITIME considers efforts to improve efficiency from the beginning to be largely ineffective.

Kagaya’s services

Kagaya offers a “ryokan” (Japanese-style hotel) service at the Wakano Onsen Resort in Nanao, Ishikawa Prefecture. Kagaya’s services are rooted in “rooms” and “people” hospitality. “People”, or employee services, are the most important element of the product provided to customers: the number of Kagaya staff per guestroom is overwhelmingly higher than the industry average.

Kagaya has also introduced an automatic delivery system reaching 400 meters in length that carries cuisine from the kitchen to guestrooms. Despite annual maintenance costs of 40 million yen (about US$400,000) there have been no payroll cuts: the goal is to give staff more time to respond to customer needs.

The idea behind this system is that higher customer satisfaction will generate more customers and revenue. In other words, cutting costs and improving efficiency do not lead to higher customer satisfaction. Improving “hospitability strength”, on the other hand, values attracting customers above all, which also leads to higher productivity.

Importance of increasing “service density”

NAVITIME and Kagaya both give highest priority to customers using their services. Services are therefore provided from the perspective of customers; in the end, this kind of framework also leads to improved productivity.

Yamato Transport’s “takyubin” parcel delivery service also exhibits similar characteristics. In his book “Ogura Masao: Business Management,” Ogura, creator of the “takyubin” service, recalls his opening remarks at a monthly meeting of branch managers regarding the new service. “We will not dwell on the bottom line. We will instead focus on the service only,” instructed Ogura, adding that employees were to strictly adhere to the slogan “Service first, profits second.” The reasoning was enhancing profitability depended on increasing the “density” of parcels, which in turn required service differentiation.

These three examples suggest that a different approach from manufacturing is necessary to improve service productivity. In other words, productivity is typically expressed as: Productivity = Production / Input.

The following methods can be derived to improve productivity in manufacturing: in the above equation, (1) fixed input (denominator) leads to an increase in production (numerator); (2) fixed production leads to a decrease in input (or a combination of the two).

The simultaneous nature of demand and supply in services, however, means that adjusting for fluctuation in the supply side operation of facilities and people is difficult. In other words, while storage makes leveling of the utilization of facility and people possible in manufacturing, this is not the case for services.

An approach that first stimulates demand and increases the “service density” is therefore necessary to improve productivity. Put differently, this approach focuses on improving service quality to generate customer demand and increase service density. Looking at the aforementioned equation, input (denominator) is first increased and the quality of service is improved, and as a result production (numerator) also rises. In this process, a higher growth percentage for production relative to input results in improved productivity.

To enhance service quality through increased input, it is necessary to provide services from the perspective of customers: this is the most important factor in the process.