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Article | Manufacturing & Service Operations Management

Market Heterogeneity and Local Capacity Decisions in Services

by Dennis Campbell and Frances X. Frei

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Abstract

We empirically document factors that influence how local operating managers use discretion to balance the tradeoff between service capacity costs and customer sensitivity to service time. Our findings, using data from one of the largest financial services providers in the U.S., indicate that customer sensitivity to service time varies widely and predictably with observable market characteristics. In turn, we find evidence that local operating managers account for market specific customer sensitivities to service times by deviating frequently and in predictable ways from the recommendations offered by a centralized capacity planning model. Finally, we document that these discretionary capacity supply decisions exhibit a strong learning effect whereby experienced operating managers place more weight than their less experienced counterparts on the market-specific tradeoff between service capacity costs and customer sensitivity to service times. Overall, our results demonstrate both the importance of local knowledge as an input in service operations and the potential for incorporating richer data on customer behavior and preferences into service cost and productivity standard metrics.

Keywords: Customer Satisfaction; Cost; Standards; Service Delivery; Service Operations; Performance Capacity; Performance Productivity; Financial Services Industry; United States;

Format: Print Find at Harvard

Citation:

Campbell, Dennis, and Frances X. Frei. "Market Heterogeneity and Local Capacity Decisions in Services." Manufacturing & Service Operations Management 13, no. 1 (Winter 2011). (Lead Article.)

About the Authors

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Dennis Campbell
Dwight P. Robinson, Jr. Professor of Business Administration
Unit Head, Accounting and Management
Accounting and Management

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Frances X. Frei
UPS Foundation Professor of Service Management (Leave of Absence)
Technology and Operations Management

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More from these Authors

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    Sales Misconduct at Wells Fargo Community Bank

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    Citation:

    Srinivasan, Suraj, Dennis W. Campbell, Susanna Gallani, and Amram Migdal. "Sales Misconduct at Wells Fargo Community Bank." Harvard Business School Teaching Note 118-022, March 2018.  View Details
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  • Case | HBS Case Collection | March 2018

    Whole Foods under Amazon

    Dennis Campbell, Tatiana Sandino, James Barnett and Christine Snively

    In August 2018, Amazon acquired Whole Foods Market for $13.7 billion. Whole Foods was struggling with high costs and faced growing competition from traditional supermarkets offering more organic products. Prior to the acquisition, Whole Foods began rolling out a new order-to-shelf (OTS) inventory management system that many observers believed had led to shortages. For years, store team leaders at Whole Foods were empowered to make inventory decisions and tailor their stores to meet local needs, but OTS came with strict rules for purchasing and displaying goods which upset many employees. Should Amazon push Whole Foods to improve performance by emphasizing efficiency and standardization? Or should it aim to maintain a sense of empowerment among employees?

    Keywords: Performance Efficiency; Performance Improvement; Employee Relationship Management; Food and Beverage Industry;

    Citation:

    Campbell, Dennis, Tatiana Sandino, James Barnett, and Christine Snively. "Whole Foods under Amazon." Harvard Business School Case 118-074, March 2018.  View Details
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    Affinity Plus: Priorities and Performance Pressures

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    Campbell, Dennis, Tatiana Sandino, and Kyle Thomas. "Affinity Plus: Priorities and Performance Pressures." Harvard Business School Case 118-087, March 2018.  View Details
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