International Journal of Operations & Production Management

An operations management view of the services and goods offering mix

Henrique Luiz Corrêa Lisa M. Ellram Annibal José Scavarda Martha C. Cooper
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Henrique Luiz Corrêa Lisa M. Ellram Annibal José Scavarda Martha C. Cooper, (2007),"An operations
management view of the services and goods offering mix", International Journal of Operations & Production
Management, Vol. 27 Iss 5 pp. 444 - 463
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IJOPM
27,5 An operations management
view of the services and goods
offering mix
444
Henrique Luiz Corrêa
Crummer Graduate School of Business, Rollins College,
Winter Park, Florida, USA
Lisa M. Ellram
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Department of Management, College of Business,

Colorado State University, Fort Collins, Colorado, USA
Annibal José Scavarda
School of Management, Royal Melbourne Institute of Technology University,
Melbourne, Australia and
Department of Production and Operations Management,
Fundação Getúlio Vargas Business School – EAESP, São Paulo, Brazil, and
Martha C. Cooper
The Ohio State University, Columbus, Ohio, USA and
Department of Operational Sciences,
The Air Force Institute of Technology, Ohio, USA

Abstract
Purpose – To develop and propose a framework, termed here as the value package prism, for
assessing the kinds of management processes and flexibility available in providing a range of value
packages (services and goods offering mix).
Design/methodology/approach – The literature is examined and a set of highly-visible
Latin-American examples are presented to support the development of the proposed framework.
Findings – Provides an additional perspective to the traditional set of characteristics (intangibility,
inseparability, heterogeneity, and perishability) for differentiating services and goods. The proposed
framework (stockability, intensity of interaction, simultaneousness of consumption, and ease of
performance assessment) and the value prism may be useful to operations managers in developing,
planning, organizing, or controlling the production and delivery of services or goods.
Originality/value – Offers a new framework and an applied way to improve operations
management by moving away from the extremes of pure services and pure goods to embrace how
businesses compete and operate today, by delivering value packages. Provides an approach that
facilitates operations managers’ understanding and ability to manage substantial changes in the value
packages offered to customers.
Keywords Operations and production management, Value chain, South America, Brazil
Paper type Conceptual paper
International Journal of Operations &
Production Management
Vol. 27 No. 5, 2007
pp. 444-463 Introduction
q Emerald Group Publishing Limited
0144-3577
Since, its origin, operations management has been strongly influenced by
DOI 10.1108/01443570710742357 manufacturing management practice and research (Slack et al., 2004). Operations
 management effectiveness and efficiency research has focused on manufacturing An operations
management (Simons and Russell, 2002). Current practice and research has tended to management
focus on manufacturing management knowledge, and its associated principles,
metrics, systems, processes, frameworks, models, and theories. While this focus has view
helped the discipline mature, it also has created a bias toward manufacturing
management while limiting the attention given to service management.
More recently, service management has begun to receive significant attention in 445
operations management (Agrawal, 2002; Roth and Menor, 2003). However, the
traditional characteristics used to differentiate services and goods, such as
intangibility, inseparability, heterogeneity, and perishability, which are still present
in the main operations management textbooks (Heizer and Render, 2006; Chase et al.,
2004; Slack et al., 2004; Stevenson, 2005), are driven by the manufacturing management
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point of view (Vargo and Lusch, 2004a, b; Zeithaml et al., 1985).

Certainly, the forces driving the new economy have intensified the discussions
about services and goods. These forces include the combination of globalization and
high technology, where the key outputs and productive assets are more intellectual
(information and knowledge) than physical, and are fundamentally reshaping the
present operations management to balance between the impacts of the old and the new
economies (Hayes, 2002). Clearly, the increased economic impact of the service sector is
an integral part of the new economy on a global scale.
The boundaries between services and goods are blurring, as products today are
often characterized by bundled services and goods (Wise and Baumgartner, 1999).
Because services and goods are frequently sold together in one single “value package,”
it is important to look at the combination of services and goods as a unit in terms of
both practice and research. Thus, rather than attempt to develop a framework that
focuses on the differences between services and goods, this paper will attempt to
provide a useful way to understand the operations management issues associated with
bundled services and goods, or value packages. The goal is to develop a framework
that can provide a basis for guiding operations management decisions when a
particular value package needs to be produced and delivered.
The remainder of the paper is organized as follows. First, issues related to the
efficacy of the four characteristics (tangibility, heterogeneity, inseparability, and
perishability) of the traditional, and currently dominant, framework for distinguishing
between services and goods are briefly presented. Next, the blurring of the distinction
between services and goods is presented, followed by the proposed framework for
describing value packages to assist managers. This proposed framework has four
pillars: stockability, intensity of interaction with the client, simultaneousness between
production and consumption, and difficulty in performance analysis. The proposed
framework is applied to some Latin American examples, demonstrating how these
characteristics influence the design and ongoing processes within operations systems
based on value package characteristics. The paper ends with conclusions and
suggestions for future research directions.

Understanding the differences between services and goods

There are numerous frameworks related to service management in the literature. First,
matrices are used to help managers design and select the right type of service
production and delivery processes. These matrices are present in both the
 IJOPM manufacturing literature (Hayes and Wheelwright, 1979a, b, 1984; Hill, 2000) and the
27,5 service literature (Johnston et al., 1992; Kellogg and Nie, 1995; Collier and Meyer, 1998).
Fisk et al. (1993) present three-stages of the evolution of the services marketing
literature. They argue that academics have reached the point where the research focus
should be on integration of services and goods, and which characteristics are most
critical. The molecular model, proposed by Shostack (1982), suggests that services
446 (intangible) and goods (tangible) elements compose each product (market entity),
which can be placed along a continuum based on the relative proportion of its elements.
Likewise, the content continuum framework (Polito and Watson, 2004) combines, but
does not integrate, both services and goods.
There is still a potential conflict between operations and marketing in practice.
Operations prefers stable production of a narrower product line to encourage operational
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efficiency, while marketing frequently focuses on satisfying customers quickly, at any

cost (Malhotra and Sharma, 2002). While Cook et al. (1999) note that the characteristics
associated with the process and product are operations and marketing-oriented,
respectively, they suggest that research should consider operations and
marketing-oriented aspects of services together. In general, there is still a lack of
investigation of operations issues that are important to service organizations and the
creation and delivery of services (Wright and Mechling, 2002).
The distinction between services and goods was useful in early services research in
identifying the unique characteristics of services, and establishing services as an area
of study separate from manufacturing. Services were differentiated from goods on the
basis of four characteristics: tangibility, heterogeneity, inseparability, and
perishability. Much of the literature has focused on these four characteristics to
distinguish services from goods (Fisk et al., 1993; Shostack, 1977; Zeithaml et al., 1985).
However, as the study of services has evolved, treating these “characteristics” of
services as definitive creates an incomplete picture, with limited generalizability
(Edgett and Parkinson, 1993; Lovelock and Gummesson, 2004; Vargo and Lusch,
2004a, b; Winsor et al., 2004). A robust dichotomy between services and manufacturing
firms does not exist (Berry and Parasuraman, 1991). Further, the oversimplification
that services are merely a subset of goods led to the treatment of services in the same
manner as goods (Cook et al., 1999). This paper explores the traditional framework and
presents a new set of characteristics that might be meaningful to operations managers
and others: the value package prism, its pillars and application.
A critical analysis of the four traditional distinctions between services and goods is
provided next. Building upon the relevant aspects of these characteristics, the goal is to
describe a value package of combined services and goods from the operations
management point of view. This brings together the characteristics that usefully
delineate combined services and goods, rather than to perpetuate the focus on
differentiation, into a “value package” to provide customers with a total solution.

Traditional characteristics
There are four traditional characteristics distinguishing services from goods. We quote
some of the most popular operations management textbooks in their most recent editions
to illustrate these characteristics. The authors may not give all the characteristics the same
names but they conceptually agree in considering these four characteristics as
differentiators between services and goods:
 (1) intangibility: “a service is something that can be dropped on your foot without An operations
hurting you” (Chase et al., 2006);
management
(2) heterogeneity: [a service] “produced for you is not exactly like anyone else’s”
(Heizer and Render, 2006);
view
(3) inseparability: “a [service] is ‘consumed’ as it is produced” (Heizer and Render,
2006), so in services, production is “inseparable” from consumption; and
447
(4) perishability: “services cannot be inventoried” (Stevenson, 2005).

We argue that these four characteristics are not absolute differentiators between goods
and services. They may be present in some goods. The characteristic of intangibility is
used to illustrate this point.
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Intangibility, lack of a physical form, is a quality commonly associated with

services. Service intangibility is noted in the literature as having a negative impact
on the client’s ability to assess service quality, establish quality standards, and even
understand and communicate the needs or requirements of the service user when
specifying the services to be rendered (Johns, 1999; Lovelock and Gummesson, 2004).
However, intangibility is also present in many goods, such as cars, drugs, vaccines,
safety equipment, and component parts, which are also assessed by non-objective
criteria, such as perceived quality and image (Garvin, 1988).
Following this reasoning, this paper suggests that intangibility is not a clear
differentiating factor between services and goods regarding management decisions,
such as the design and management of quality systems. The same holds true of
heterogeneity, inseparability and perishability. The point is not to discredit these
traditional characteristics, but to demonstrate that there is a blurring of services and
goods, and that a new framework is needed for this new environment (Winsor et al.,
2004; Grove et al., 2003; Morris and Johnston, 1987).
In the marketing literature, Vargo and Lusch (2004b, p. 235) noted that it would be
much more valuable to “. . . provide a foundation for a more unified understanding of
exchange in general, without reference to the artificial distinction between goods and
services,” which may imply overly simplistic and inappropriate strategies. “Customers
do not buy services or goods: they buy offerings which render services to create value”
(Gummesson, 1995, referenced in Vargo and Lusch (2004b, p. 328)). Thus, this research
focuses on the value package. Before presenting the proposed approach to
understanding the services-goods value packages, it is useful to better understand
the shifting competitive landscape in terms of how operations management and
industrial buyers view value packages.

The blurring of the distinction between services and goods

A competitive strategy clearly emerging since the mid 1990s is that of the “total solution
provider.” Rather than just provide goods that the company then has to manage, or
services, which the company has to match with goods to provide value, companies do
both within a single product offering (Reis and Peña, 2000). This has been most
prevalent in companies that provide goods such as International Business Machines
Corp. (IBM), Hewlett-Packard Co. (HP), General Electric Co. (GE), Johnson & Johnson,
Allegiance Corp., Becton Dickinson and Co. (Brown, 2000), General Motors (GM), and
ExxonMobil (Bolton et al., 2004, p. 24), the Mexican cement manufacturer Cemex (2006),
the Brazilian and largest South American manufacturer of fertilizers Bunge (2006).
 IJOPM There are several reasons for this movement towards combining goods and services.
27,5 Many goods, including capital, are rapidly becoming “commoditized.” Adding services
to support the goods may provide a way to differentiate goods offerings to prevent or
delay the margin erosion characteristic of “commoditization.”
Examples of other “goods” that have experienced “commoditization” and have been
transformed into value packages range from relatively simple products such as
448 janitorial supplies (firms such as Waxie (2006) provide their US customers with analysis
such as how many janitorial personnel are necessary for the facility, the expected supply
usage, and the recommended inventory levels, so the manager can better gauge the
organization’s performance) to more engineered products such as MP3 players (Apple
differentiated the iPod product line from the competition by transforming their offering
into a “value package” with the creation of iTunes, a “content” provider).
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Adding services to goods has also been used extensively by local manufacturers
and global firms’ Latin American operations as a defensive strategy against imported
goods. A number of Brazilian-based manufacturing operations face the challenge of
protecting their presence in local markets against imports that became very
price-competitive due to a strong Real (the Brazilian currency). The locally-provided
value packages are much more difficult for overseas suppliers to match than providing
goods alone. Value packages provide differentiation. One example is the local operation
of Rhône-Poulenc (Rhodia, 2006) that produces polymers for industrial applications.
To protect against competitor operations from overseas, the company offers their
customers pre-sale advice and on-site after-sales support related to the application of
their products. Another example is the local operation of Saint-Gobain Latin America
(Exame, 2003). They manufacture industrial abrasives to serve local markets, coupled
with specialized on-site technical advice to help customers specify and use the products
correctly. This may even lead to lower revenues in cases where the customer was
previously over-specifying. However, Saint-Gobain believes that this less tradable
(Kon, 1999) value package is difficult for competitors with no local presence to match.
Similarly, by expanding into a consultative role with customers, Saint-Gobain Latin
America can ensure that customers select the right hardware and use it properly.
Owing to the ability of service providers to customize offerings, customize support, and
create personal relationships, it is often more difficult for organizations to
“commoditize” or directly compare services than to compare goods. Thus, the
greater and more varied the services component of the services-goods bundle, the less
“commoditized” the goods will become. More than that, such services can act as loyalty
agents that contribute to increased future business because the business flow will
depend on the relationship flow and, therefore, on keeping or increasing loyalty of
customers. Loyalty in competitive markets only occurs with clients who are very
satisfied with the value package offered (Heskett et al., 1997), and leads to reduced
supplier switching (Johnston and Clark, 2001).
The first mover towards a mixed services and goods value package in any given
industry would certainly have an advantage, but the services packages are fairly easy to
emulate, thus not providing sustainable competitive advantage. What such services
packages do provide, however, is more “stickiness” for the customer. It is more difficult,
costly, and time consuming to switch from full service providers than providers of
goods alone because of the service embeddedness and customization of
network configuration. Thus, services are really what provides the value added
 in this market, rather than the goods, or hardware, which are available from several An operations
manufacturers. management
A number of Latin American-based operations are following this route to help
protect local market share. They sometimes underestimate the operations challenge view
that is required to transform a good to a value package, and effectively manage the
service component. Operations processes, resource characteristics and structure may
have to be changed. The framework proposed in this paper aims to help companies 449
better understand the nature and the magnitude of the operations changes required
when particular aspects of the value package are altered. From a customer satisfaction
standpoint, providing services to support goods helps ensure that the goods are used
properly, thereby increasing customer satisfaction and creating greater loyalty. The
next section proposes what the authors perceive as a more useful way to build on
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the strengths of the traditional services versus goods model, and adapt it to better
manage and understand services-goods value packages.

A new set of characteristics

From an operations perspective, the characteristics of tangibility, heterogeneity,
separability, and perishability do not always differentiate between services and goods,
and may contribute to confusion over the nature of value packages. However, the
concepts underlying these factors provide insight into both the strategic formulation
and decision making related to production and delivery of value packages (Corrêa and
Corrêa, 2006). Based on the previous discussion, it appears that the issues that affect
operations management are related to the four following characteristics: degree of
stockability; degree of intensity of interaction with the client; degree of
simultaneousness between production and consumption; and degree of difficulty in
performance analysis.

Degree of stockability
The degree of stockability characteristic refers to the ability to inventory items needed
to deliver the service before demand occurs, as well as the ability to inventory the
service to be delivered. For example, a barber can have the razor, shampoo, etc.
available for use in stock, but the barber cannot stock haircuts. The haircuts occur
simultaneously with the demand, when someone walks into the shop. This concept
underlies the characteristic of simultaneity in the literature. However, this
characteristic is not merely dichotomic, as “simultaneity” is; rather, it depends on
the ease of adopting the strategy of demand leveling for the production and delivery of
the value package, regardless of the proportion of services and goods. An espresso
coffee, for instance, is a physical product and still cannot be stocked, in practical terms,
for more than some seconds. Production and consumption are not strictly
simultaneous, but the time span between one and the other is very short, making it
virtually impossible for a coffee shop to stock espressos in anticipation of demand.
A fresh sandwich has a higher degree of “stockability” than an espresso, because it can
be consumed a couple of hours after production – that is why some shops choose to
build anticipation stocks of them to face demand peak hours during the day. The point
here is that a product that is not simultaneously produced and consumed does not
guarantee that it is possible to build anticipation stocks. How far in advance
anticipation stocks can be built depends on the item’s “degree of stockability” as a
 IJOPM function of the maximum time span between possible build up of anticipation stocks
27,5 and the actual demand. While contrary to the notion of just-in-time, the option of
stocking items can allow more efficient use of capacity, better ability to adapt to
changing demand to meet seasonal fluctuation, and more flexibility in scheduling.

The degree of intensity of interaction

450 Human participation, including interactions between clients and service providers,
underlie the concept of heterogeneity in the literature. Heterogeneity results from
people performing services differently. Although the literature associates services with
the characteristic of heterogeneity, some services can be very homogeneous.
Non-labor-intensive services, such as internet shopping, tend to be very consistent.
On the other hand, not all goods are homogeneous. In goods requiring customized
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craftsmanship, consistency is difficult to achieve. One pair of high class leather shoes
made to order by an Italian artisan is never exactly the same as the next pair that he
makes – and it is not supposed to be. Thus, from an operations viewpoint,
the dichotomy between goods and services is also not absolute when considering the
characteristic of heterogeneity. What matters for operations is neither heterogeneity,
nor whether the process renders a service or produces a good, but the degree of
intensity of interaction between the customer and the process. In general, greater
customization requires a greater degree of interaction to acquire information about the
specific needs. In such cases, the operations manager requires operations resources,
i.e. people that can:
.
listen;
.
interpret; and
.
respond appropriately to the customer.

These resource characteristics are necessary for, e.g. career counseling (a highly
customized “service” operation) and for haute couture (the creation of exclusive
custom-fitted fashions, a highly customized “manufacturing” operation), but not as
much for less customized operations such as public transport (service) and cement
making (manufacturing). The former two require different, and probably greater,
resource flexibility characteristics and different processes (Brasil and Slongo, 2004)
than the latter two.
Additionally, the higher the degree of intensity of the interaction of the people and
other resources, the more difficult it will be to control and manage the production and
delivery of the value package. Supplier and client exchanges can be analyzed by
intensity of the information flows involved. We propose that intensity can be measured
by the complexity (richness, amount, and detail) of the information exchanged and by
the need to customize the value package’s production and delivery. Highly customized
packages require a high degree of intensity in the relationship. Thus, this characteristic
has implications for the right type of production and delivery processes and resources,
with the more intense interaction requiring more flexibility in all of these aspects.

Degree of simultaneousness between production and consumption

This characteristic is related to both the concepts of tangibility and inseparability as
presented in the literature. While high simultaneity generally equates to low
stockability, low stockability does not necessarily equate to high simultaneity.
 For example, a copier repairperson cannot build up “stocks” of repairs – copiers must An operations
break before they can be repaired – production and consumption are simultaneous. management
So, the operations manager has to deal with the need to provide resource availability
whenever demand happens (“degree of stockability” is zero). The “degree of view
stockability” of a product directly impacts the inventory and capacity management
options that can be used (e.g. to what degree anticipation stocks can be built up to
better level production), while the “degree of simultaneousness” directly impacts the 451
quality management options that can be used (e.g. process and/or finished product
quality control). Although copier repairs are not a stockable product, when a technician
finishes fixing the equipment, it may be hours, or even days later, before the customer
will actually consume the result of that process, implying low simultaneity. During the
time between completion of the repair and use of the copier, finished goods quality
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control can be performed. This is not the case with a call center, for instance, where
“sorting good from bad” operator answers cannot be performed before the answers
reach the customer’s ears. In a call center, the degree of stockability is zero (implying
impossibility of the use of anticipation stocks) and the degree of simultaneousness is
very high (implying impossibility of the use of finished product quality control – only
process control can be used). In a copier repair operation, the degree of stockability is
also zero (implying impossibility of anticipation stocks), but the degree of
simultaneousness is lower (implying that both process and finished product quality
control can be used).
On the other hand, for some processes that involve the production of physical goods,
finished product control is either infeasible or inconvenient, because the production
and consumption of the product have a high degree of simultaneity, thus requiring that
the managers favor process control. For instance, a fast food chain does not have the
opportunity to run extensive lab tests to detect possible contamination on each of the
millions of finished sandwiches sold to customers everyday. Because the production
and the consumption of the finished good have a high degree of simultaneity (although
not strictly simultaneous) the finished product quality control option cannot be fully
utilized – so the chain has to rely primarily on process control. However, because of a
much lower degree of simultaneity, a manufacturer of canned vegetables has more
opportunity for finished product quality control. Thus, the type of product or process
control adopted depends on the characteristics of the production processes and on the
“degree of simultaneousness” between the production and consumption of the product,
and not whether the value packages are more oriented towards services or goods.

Degree of ease in performance assessment

The ability of the customer to analyze performance is a characteristic that underlies the
concept of tangibility in the literature. Historically, many customer contact services,
such as call center operations, were viewed as intangible and thus difficult to assess.
However, this has shifted as call centers have become more prevalent and frequently
outsourced. Currently, they are measured, for example, by industrial customers of
contract call centers, by many methods. The caller can be transferred to a survey upon
call completion and be asked whether his or her problem was resolved. One can also
objectively measure the amount of time on a call, the amount of time idle, and the time a
customer waits in the queue. Service measurement is possible. Thus, it is not the
 IJOPM tangibility or intangibility of the offering that drives the measurement issues for
27,5 operations managers. It is the degree of ease or difficulty to measure.
Value packages with a low degree of difficulty to assess require formulation of
different management strategies than those that are difficult to assess, regardless of
whether they are tangible or intangible products. One example of a service that is
difficult for the customer to assess is taxation consultancy. In some countries, such as
452 Brazil and several other Latin American countries, the laws surrounding taxation are
so intricate that the quality of consulting provided by a firm is very difficult for a
manager to assess. The consulting firms may want to provide data to help the
customer assess the quality of the value package provided. Firms selling a value
package that is easier to assess by the customer (such as industrial catering, for
instance), will place much less emphasis on helping customers to judge its
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performance.
The next section provides insights into how the characteristics proposed in this
paper affect the design and management of operations systems.

A guideline for designing operations systems based on value package

characteristics
From an operations management standpoint, the four proposed pillars of the value
package prism (stockability, intensity of interaction, simultaneousness of
consumption, and difficulty to assess) can be used to describe the value package
offered to customers. While these characteristics were adapted from the traditional
characteristics (Figure 1), they serve a different purpose. They are used as a way to
help operations managers design and manage production and delivery processes
rather than as a way to differentiate services and goods.
One way to denote a value package based on the four proposed value package
characteristics is a “radar” representation, as in Figure 2(a). The radar representation,
also called a spider web chart, is an analytical tool often associated with
benchmarking, which allows for simultaneous presentation of three or more
performance measures (Mosley and Mayer, 1999). The radar chart is adapted here to
act as a tool to describe the level of the four proposed value package characteristics in a
value package prism.
Each of the four segments of the prism is independent of the others and represents a
continuum varying from “low” (in the center at the origin of the segment) to “high”

Traditional Proposed

Degree of Stockability

Intangibility Degree of Intensity of

Interaction
Heterogeneity
Degree of
Inseparability Simultaneousness between
Production and
Figure 1. Perishability Consumption
The four traditional and
the four proposed value
package characteristics Degree of Ease in
Performance Assessment
 Simultaneousness An operations
(of consumption)
high management
view

Intensity of interaction
(process – customer)

Difficulty to assess
(performance)
453
high

high
low
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high
Non–stockability
(of product)
(a) Value package "prism"

Simultaneousness Simultaneousness
high high
Intensity of interaction

Intensity of interaction
Difficulty to assess

Difficulty to assess
high

high

high

high

high high Figure 2.

Non-stockability Non–stockability Radar representation of
two value package prisms
(b) Praxair (before) (c) Praxair (after)

(towards the arrow at the end of the segment). Thus, each intermediate point is
meaningful, corresponding to the “degree” of simultaneousness (of consumption),
intensity of interaction (between the process and the customer), non-stockability (of the
product or service), and difficulty to assess (performance). Figure 2(b) and (c) show an
example of the application of the value package prism when there is a change in the
value package. Figure 2(b) graphically shows the previous value package of White
Martins (2006), the Brazilian subsidiary of Praxair, a company who originally
manufactured “air gases” (e.g. oxygen, nitrogen, and argon) and supplied customers
with “cylinders” of gas. Because the value package offered was stockable (low degree
of non-stockability), production and delivery could occur independently of when the
gases were consumed by customers (low degree of simultaneousness), allowing for
activities such as end product quality control for these standard, commodity-like gases
(low intensity of customer interaction). This did not require a great deal of flexibility in
the process, and standard tests and procedures applied to assessing the product (easy
to assess). Mapping the levels of these four characteristics on to the radar chart in
Figure 2(b) results in a relatively small area defined by the four points near the center.
 IJOPM To address the commoditization of its products, White Martins began supplying
27,5 customers with an altered value package, including the service of on-site oxy-cutting of
metal sheets. Thus, it was selling “meters of cut metal sheets” instead of “bottled gas”
for use in metal cutting. This significantly changed the levels of the four characteristics
of the value package. The level of non-stockability increased because Praxair
employees perform metal cutting at the customer premises whenever the customer
454 process requires. By co-locating inside the customer premises, the level of intensity of
the customer interaction increased substantially – requiring higher levels of
interpersonal skills and higher process flexibility to conform to the particular
specifications of the individual customers. The degree of simultaneousness also
increased because now the customers will consume the metal cutting result almost
immediately – many of its customers, for instance, are in the automotive business and
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work just-in-time – providing less opportunity for Praxiar’s end product quality
control than when it was were providing bottled gas. And finally, assessing the result
of a process such as metal oxy-cutting as part of a dynamic environment, such as the
customer manufacturing plant, may be more difficult than merely assessing “bottled
gas” – it may involve complex aspects like assessing the relationship, cooperation, and
responsiveness. The result is shown in Figure 2(c). The points correspond to the
degrees the four characteristics that cover a much larger area in the radar diagram
than in Figure 2(b). This greatly complicated the operations processes for White
Martins, but contributed to product differentiation, working as a defensive strategy in
a highly competitive market. It is much more difficult for a non-local competitor to
match the new value package than for the competition to match “bottled gas,” a good
that is easy to ship in. This is not to suggest that a greater or lesser degree of any given
characteristic is better or worse. It is simply different, supportive of a different
customer strategy and correspondingly creates different production and delivery
issues for operations management.

Discussion
Using the radar diagram to assess proposed value packages can assist operations
managers in anticipating changes and designing the right processes to produce and
deliver the altered value packages. The potential usefulness of the four proposed value
package characteristics is presented in more detail in the following paragraphs.
Increased non-stockability reduces the operations manager’s options. When the
product is less stockable, production leveling becomes less available. The operations
manager must accept the inability to meet surges in demand, and lose sales, or have
extra or flexible capacity in place to meet potential needs.
Increased degree of intensity of interaction between people (clients and service
providers like employees) and other resources also requires that several aspects of the
production and delivery processes are adjusted. Because the employee directly
represents the company, he or she must have good interpersonal skills and present a
positive image to the customer. In addition, high interaction employees will have to be
adaptable, and master the “arts” of listening, comprehending and adequately
responding to customers’ information and requirements. Thus, proper employee
training in these activities is crucial. Whether producing a value package more closely
resembling a service or a good, these employees need training to consistently perform
within specifications, and to adequately self-inspect their work to understand whether
 it is acceptable before it is released to the customer, who may or may not be present for An operations
the production and delivery processes. management
Increasing the degree of simultaneousness limits the operations manager’s options
in terms of quality control approaches. When simultaneousness is low, the manager view
can use product control, process control, and employees’ self-control (normally a
combination of them). The more simultaneous the production and consumption are, the
less the manager can use product control (inspection). 455
Increased degree of difficulty ton assess performance creates the need for more
sophisticated performance measurement approaches that can encompass assessing
“softer” aspects such as relationship, trust, responsiveness, and cooperation.
A conscious decision must be made regarding what needs to be measured, and how
to develop measurements that are meaningful and cost beneficial. There may also be a
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need to create mechanisms that help customers’ assess the performance they perceive
in ways that are meaningful to the customer.
It seems that the complexity of the operations manager’s task increases as the area
defined by the value package in the prism increases. In some instances, the operations
manager loses management options, such as end product quality inspection. In other
instances, the operations manager must deal with more complexity in processes, such
as customer interaction, performance assessment and flexibility.
In an attempt to help operations managers to better understand what sort of process
changes are required as the value package is altered, Figure 3 shows the value package
prism with some process aspects that correspond to regions of the four continua. This
could provide a starting point for operations managers designing new processes, or
dealing with changes in an existing value package offering.

Examples
Figure 4 shows how the radar chart can be used to map the value package prism for a
number of value packages. For example, for an inbound call center for a software help
desk, the level of simultaneousness is high and stockability is low: capacity must be
available when the client calls, or he or she will hang up. Likewise, customer
service representatives must be well trained in effectively dealing with clients’ issues,
because there is little room to check and correct quality of the finished product
(response to customer) before that response is delivered.
To deal with the capacity issue, a business might add personnel during peak times,
or train personnel in other areas to answer the phones during peak times. In addition,
to improve demand management, there might be an automated answering system that
provides standard information such as the operating hours, mailing address, and
process for making a change, or refers customers to a web site. This can channel the
remaining unique interactions to customer service representatives. Dealing with the
customer one-on-one requires a high level of flexibility, so again, training and
interpersonal skills are important. Finally, there is some complexity in performance
assessment of the call center. While objective measures like call volume, call times, and
wait times can be readily automated, there is also a concern with service quality. Was
the customer treated in a respectful manner, and was the issue resolved? Gathering
such data usually involves asking the customer directly. In addition, differing levels of
customer expectations must be gauged to get a fair assessment.
 IJOPM Simultaneousness
(of consumption)
27,5 high

Restricted set of
456 quality control
options

Full set of quality

control options
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performance assessment
Intensity of interaction
(process - customer)

soft requirements &

Difficulty to assess
flexibility needed

flexibility needed
High level of soft
requirements &

(performance)
Lower level of

Sophisticated
performance
assessment
systems

Simpler

systems
high

high
low

Full set of
capacity mangement
options

Restricted set of capacity

management options

Figure 3.
Process options related to high
different value packages Non-stockability
(of product)

The proposed framework has broad potential application. It moves operations

managers away from the mindset of the services-goods dichotomy, which, while
interesting conceptually, is less useful in practice and research in a value package
world. The next section offers a summary of the paper, followed by suggestions for
future research directions.

Conclusions
This paper has provided an additional perspective to the traditional framework for
differentiating services and goods. First, the authors suggested that intangibility,
inseparability, heterogeneity, and perishability do not consistently distinguish between
services and goods. Then, the authors indicated that because this set of characteristics
does not appear to address the way firms operate today, it may not be as useful to
operations managers in terms of developing, planning, organizing, or controlling the
production and delivery of services or goods. A new approach is needed. This approach
must embrace the blurring of the lines between services and goods. Currently,
an increasing number of services and goods are bundled as value packages.
 Simultaneous Simultaneous Simultaneous An operations
high high high
management
view
Intense interaction

Intense interaction

Intense interaction
Difficult to assess

Difficult to assess

Difficult to assess
high

high

high

high

high

high
457
high high high
Non-stockable Non-stockable Non-stockable
Aircraft parts High end hotel Commodity steel
manufacturer
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Simultaneous Simultaneous Simultaneous

high high high
Intense interaction

Intense interaction

Intense interaction
Difficult to assess

Difficult to assess

Difficult to assess
high

high

high

high

high

high
Figure 4.
Illustrations of the value
high high high
package prism for
Non-stockable Non-stockable Non-stockable
different value packages
Call center Consulting firm Specialized surgery

Combining goods with services allows differentiation and diminishes commoditization,

with the associated loss of profit margins. As demonstrated, value packages can also
serve as part of a defensive strategy against overseas competitors who find it more
difficult to establish a local base to provide “on-site” services than to merely provide their
products.
Useful frameworks should have a basis in practical reality. The suggested
framework offers an applied way to improve operations management by moving away
from the extremes of pure services and pure goods to embrace how businesses compete
and operate today, by delivering value packages. This paper suggests that
stockability, intensity of interaction, simultaneousness of consumption, and
difficulty to assess performance are more useful characteristics for the operations
manager in understanding value packages. These specific characteristics were selected
to bring services and goods together, in contrast to the traditional approach of focusing
on the differences. The suggested characteristics can also be applied to items
traditionally classified as pure services or pure goods.
By simultaneously evaluating these suggested characteristics and mapping them
on a radar chart, the operations manager can develop a prism profile for any given
value package or portion of a value package offering. Using this profile, the operations
manager can assess his or her most effective options in terms of inventory
management, quality management, flexibility required, interpersonal skills required of
the workforce, and related issues. This can help with planning of operations to better
understand requirements before a change is implemented, allowing for anticipation of
changes in the cost and process structure of the operations. It can help with the
 IJOPM execution of change by identifying the options and limitations associated with each
27,5 value package characteristic. This proposed approach can also help to identify and
provide insights into day-to-day management issues, such as the skill sets required of
employees.
The proposed framework is applied to some Latin American examples, particularly
Brazilian firms. The recent decline of trade barriers and locally strong currency have
458 exposed Brazilian-based operations to more cost effective competitors from overseas.
The defensive strategy of adding service content to goods offered to local markets has
been adopted by a number Brazilian-based operations. The framework presented here
provides an approach that facilitates operations managers’ understanding and ability
to manage substantial changes in the value packages offered to customers. The
contribution of this proposed framework extends beyond Latin American firms to
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businesses across the globe.

While this proposed framework is broadly applicable, it has limitations. For
example, some issues that affect operations decision making, such as technology and
the environment, have not been included here because they have not historically been
viewed as differentiators between services and goods. The items focused on here were
specifically selected to demonstrate issues associated with the increasingly common
blending of services and goods, rather than to focus on their perceived differences. If an
operations manager wanted to use this proposed framework as a complete decision
support framework, or a researcher wanted to test this proposed framework, the radar
chart approach offered here can easily be adapted to take into account other variables
that affect operations decision making, some of which may be company or situationally
specific.

Future research directions

When a new framework is introduced, several future research directions should be
considered. The sufficiency of the framework to cover the domain of the process under
investigation is important. If the framework is to supplant the current variables, then
the two frameworks should be further compared. The usefulness of the application of a
managerial framework should be assessed. The following research questions are
offered from these perspectives.

Sufficiency of the four proposed value package characteristics

The four proposed value package characteristics (stockability, intensity of interaction,
simultaneousness of consumption, and difficulty to assess performance) were
indirectly derived from the salient features of the four traditional characteristics
(intangibility, inseparability, heterogeneity, and perishability). However, there might
be other characteristics that are worth including in the value package prism in terms of
adding to its descriptive and analytical potential. For instance: is customer
participation in the value creation a fifth value package characteristic or is it
included in intensity of interaction and/or in simultaneousness? The more activities an
operation delegates to the customer, such as online product configuration and order
placement, the more attention should be given to activities such as customer training
and mistake proof mechanisms. Does this justify the definition of a fifth characteristic?
Some authors appear to think so. Customer participation has long been considered as a
 relevant aspect of the services and goods offering by the Nordic School tradition of An operations
service marketing and management research as can be noticed in the following quote: management
The consumer influence on the service offering [. . .] is twofold. The consumer himself takes view
part in the production process and, consequently, has an impact on what he gets in return.
On the other hand, the other consumers simultaneously buying or consuming a service also
influence the service offering (Gronroos, 1982, pp. 38-9).
The authors posit that the new set of characteristics proposed in this paper is more
459
useful than the traditional and current services-goods dichotomy from the operations
management point of view. However, further research is needed in order to empirically
assess whether the proposed framework actually has greater managerial usefulness
than the current variable set.
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Value package prism construction

One issue that is evident when a manager starts using the value package prism to
describe value packages is the different polygon shapes which form as a result. One
could hypothesize that there might be a proportional relationship (albeit not linear)
between the area of the polygon formed and the managerial complexity of the
operations that will produce and deliver it. Are there managerial implications
associated with the shape of the value package prism’s figure?
Second, do the four proposed value package characteristics form an orthogonal
system; in other words, are the characteristics independent of each other or necessarily
correlated in someway? If they are correlated, what is the interaction (e.g. the presence
of tradeoffs) among the characteristics and what are the managerial implications of the
possible correlations? In matrices relating all pairs of characteristics possible, are all
quadrants viable/possible?
A third research opportunity to develop the value package prism as a useful
framework is to develop testable scales for the four proposed value package
characteristics so that different intermediate points or “stages” could be better defined
as they vary from “low” to “high.” For example, what condition actually characterizes a
“high” degree of simultaneousness? It appears to the authors that this analysis should
include at least product “shelf life” and demand cycles. Further conceptual
development and empirical testing is needed related to each of the proposed
characteristics.

Relationship of value package configuration to the proposed framework characteristics

Another topic that is potentially fruitful in terms of future research and practice is to
further explore the relationship between value packages and production and delivery
process/operations characteristics. The authors outlined a preliminary framework
(Figure 3) in an attempt to show some relationship between the value packages
described in the value package prism and operations characteristics. Does this provide
a model for improved outcomes in practice?

Limitations of the proposed framework

One important aspect that should be further researched relates to the value package
prism’s limitations. What are the confines within which it is applicable? Although
the authors used some illustrative examples of aggregate packages, it appears to the
authors that the “shapes” of the value package prism will likely be different when
 IJOPM different activities within the organization are analyzed. In the example of a
27,5 “specialized surgery” in Figure 4, the shape relates to the activities performed by the
physician’s team inside the theatre, but, if one thinks about the back-office activities of
the hospital which are also crucial for a good value package to be delivered (such as the
theatre cleaning between surgeries), the shape would be very different.
The value package prism is presented as one possible seed for the development of a
460 more integrated theory of service and manufacturing management. It offers an
operations management view of the services and goods offering mix. With further
research, this proposed framework can be developed to provide a more appropriate
way for operations managers to plan and manage their own activities and interfaces
with other functions.
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Corresponding author
Henrique Luiz Corrêa can be contacted at: HCorrea@rollins.edu

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