The discussion about classic and lean organizations showed that machine bureaucracies are moving to new, more competitive forms that match with new environmental demands. At the same time, machine bureaucracies are changing in their products and transformation technology. Two trends are particularly interesting in this case. The first trend is industrialization of services (Grönroos, 1990). Services lose their classic interpersonal nature by lowering the labor intensity and degree of interaction (Schmenner, 1986, pp. 28-31). Cash dispensers are typical examples of industrialized services because they enable clients to take money from their bank accounts without direct interaction with a bank employee. The second trend concerns manufacturing organizations that increase their supply of services (Kotler, 1988, p. 476-493). For instance, a car manufacturer may develop a car lease service as a new business with synergy to manufacturing, and which is profitable in itself. Other examples are: machinery manufacturing companies that also sell consultancy, and computer manufacturers developing and selling software, supplying educational programs and free communication services via a Value Added Network that is otherwise used for user support and remote maintenance.
The importance of the distinction between services and manufacturing in our study on organizational learning, is that both types of business have different types of transformations and products that lead to different ways of organizational learning. Some evidence for this proposition was found by Mills and Moberg (1982, reprint from Bateson, pp. 152-153) in an overview of major research about the relation between technology (which is treated as a synonym of transformation in their study) and organization structure. Of the 26 studies reviewed, out of the 11 studies on manufacturing 10 seemed to have found a clear relation between transformation and structure. Of the 8 studies with a service sector sample, 5 showed relations between transformation and structure. Of the 7 studies with a mixed population, only 1 showed a relation between transformation and structure. This finding is especially important when organizational learning processes are regarded as a subtype of organizational transformation, and when organizational learning norms are regarded as a subtype of organizational norms. This would predict that the distinction between
service and manufacturing organizations (as a distinction in organizational transformation) explains different ways of organizing organizational learning. Other reasons for distinguishing service from goods manufacturing in the context of organizational learning are provided by Quinn (1992), who stated that service activities:"...usually rest on some special knowledge- base or intellectual skills. Increasingly, therefore, developing and managing human intellect and skills - more than managing and deploying physical and capital assets - will be the dominant concerns of managers in successful companies (p. 439)".
An additional reason for studying services is that machine bureaucracies are traditionally linked with manufacturing organizations (like car producers), but the service sector in our economy is growing substantially and outnumbers the manufacturing sector in many ways.
Excursion: The Service Sector
Most national accounting offices define services as all output that does not come from the four goods- producing sectors: agriculture, mining, manufacturing and construction. The service sector embraces:
• distributive services, such as wholesales, retail trade, communications, transportation and public utilities.
• producer services, such as accounting, legal counsel, marketing, banking, architecture, engineering and management consulting.
• consumer services, such as restaurants, hotels, laundry.
• non-profit and government services, such as education, health care, the administration of justice and national defence.
(Ginzberg and Vojta, 1981, p. 23-24).
In the US economy, services have increased considerably in importance in the last decades. Table 5.4 gives Ginzberg and Vojta's data about changes in relative employment in goods-production and services:
Goods-production Services Goods-production Services 1929 45% 55% 1948 46% 54% 1948 44% 56% 1978 34% 66%
1977 32% 68% Source: Ginzberg and Vojta, 1981. Reprinted in Bateson, 1989, p. 26
Source: Ginzberg and Vojta, 1981. Reprinted in Bateson, 1989, p. 25
Table 5.5: Percent of Gross National Product in US economy.
Table 5.4: Percent of Labor Force in US economy.
Also in terms of gross national product, services outnumber goods-production (despite the many problems with measuring the value, of for instance, government services). See table 5.5.
The non-profit services are excluded from our research objective. Interestingly enough, many of these services are now becoming profit services, because of government retrenchment policies (for example, health care, pension funds, state computer facilities, railways). Because many additional services are now priced, and their volume can be more easily measured, the percentage of services in gross national product will rise in future statistics.
Ginzberg and Vojta also mention that services are becoming increasingly organized in machine bureaucratic configurations as is stated in next quote (Ginzberg and Vojta, 1981, pp. 33-34):
economics of scale characteristic of manufacturing could not be achieved in service enterprises. Services cannot be produced for inventory and cannot be shipped. That, however, is not the entire story. Improvements in communications, particularly in processing and transmitting numerical data, facilitated the growth of large service companies in the postwar decades by linking together in single enterprises large numbers of small service establishments. Major banks were among the first to develop worldwide systems of branches. Now multi-unit hotel chains, automobile-rental companies and fast-food-franchise enterprises have followed the example set by the banks. The economics of these arrangements are based on the gains that the large service company can achieve through integrated planning, financing, accounting, marketing and similar functions. Even large producer-service firms in law and accounting have increasingly expanded overseas through the establishment of branches, partnerships or franchises. This development helps to explain the surprising fact that legal services have recently emerged as the largest export industry in New York City, outranking its apparel industry."
Service and manufacturing organizations can be distinguished by their output and transformations. Dimensions to rate the differences in output are: tangibleness of output, discreteness of output, perception of the output value, organization's output goal, and the role of measured output. Service output is less tangible and less discrete than the output of manufacturing organizations. This makes it easier for manufacturing organizations to have objective measures for output than it is for service organizations. The output goal of manufacturing organizations is therefore also easier to define in terms of profits and volumes, whereas service organizations more often apply immaterial criteria such as client satisfaction. It is therefore difficult for service organizations to use output measurement as a means for learning. The success of service organizations is much more indirect, and output control could even misdirect attention to the real causes of longer term success.
With respect to transformations, 8 items are proposed on the basis of Mills and Moberg's paper, that need consideration when distinguishing service from manufacturing. These items are briefly described in table 5.6.
M. B. Item
Service Manufacturing
Materials and Equipment
Knowledge Machines, physical materials and labour
Involvement of client in production
Client is ego-involved Client has contact after production (sales) and sometimes before production (design and contracting) Information
processing
High, accurate and timely information from client is needed
Planned work
Responsibility for success
Client has joint responsibility for success
Responsibility for success lies with the producer
Description of process phases
Input, conversion and output are hard to distinguish
Clear distinctions between input, conversion and output (related with logistic stream)
Stocks and buffers Stocks are impossible. Buffers are made by selection of clients,
routinization of service and rationing
Stocks are possible (under certain conditions) and buffers are created by planning of the production stream
Systems boundaries Operating core is open system (involvement of client), administration is closed system
Operation and administration are both closed systems.
Professionalism Can be high or low. Low (except in engineering) Based on Mills and Moberg, 1982, pp. 154-161.
Table 5.6: Eight Items for Describing Service and Manufacturing Organizations.
On the basis of these ideal typical considerations, chapter 7 defines a scale of the extent to which an organization can be called service or manufacturing.