Service organization

2. Characteristics of Service Organizations
Service organizations: organizations that produce and market intangible services.
Management control in companies engaged in the service sector has some special characteristics in comparison with the management control in manufacturing companies. There are some important factors that should be mentioned :
• Absence of inventory buffer: Unlikeproducts, services cannot be stored, ie, it must be consumed at the time that are demanded. Moreover, the costs of many service organizations are essentially fixed in the short run.
• Difficulty in controlling quality: Once manufactured, the quality of products can be analyzed using different techniques or visually. However, services cannot be judged objectively, because each individual perceives themdifferently.
• Labor intensive: Manufacturing companies can introduce machinery and technology in its manufacturing processes, while service companies are labor intensive. In many cases specialized personnel is required such as doctors.
• Multi-unit organizations: Many service companies operating in many different places with different units. Some of the units are owned and other operates undera franchise. The similarity of the units provides a common basis for analyzing budgets and evaluating performance.
There are four different types of Service Organizations:
3. Professional Service Organizations
Law firms, health care organizations and architectural firms are examples of organizations whose products are professional services. One of the special characteristics of a ProfessionalService Organization (PSO) is their goal. Compared to manufacturing companies, which try to earn a satisfactory profit for example, professional organizations have reasonably few tangible assets. Their main asset is the skill of its professional staff, which does not become visible on its balance sheet. One of their financial goals is to afford sufficient compensation to the professionals. Besidesthat goal many PSO’s are trying to increase the size.
The professionals constitute another special characteristic. Professional Organizations are very work intensive and the education for most professions does not include education in management (they tend to look down on managers). Furthermore they have a tendency to give insufficient weight to the financial implications of their decisions; itleads to insufficient cost control.
The measurement of output and input of a PSO cannot be in physical expressions. Besides that it is difficult to plan the necessary time for an assignment, to set reasonable standards or to judge how adequate the performance was because the work of many professionals is not repetitive. The task of measurement performance is influenced by the fact that manyprofessionals are disinclined to keep track of how to spend their time and difficult problems come up in deciding how time should be charged to clients.
Another special characteristic of a professional organization is the fact that they are comparatively small and operate at a single location. In some PSO’s the profession’s ethical code confines the amount and character of open marketing efforts byprofessionals. If it can’t be overt, it takes the form of articles, personal contacts, conversations and so on.
The following part deals with the Management Control Systems of PSO’s. In many professional firms is the selling price set in a traditional way. If the professionals are used to keeping track of their time, fees normally are associated to professional time spent on the engagement. Inother professions the fee is based on the monetary size of the security concern. Hence, prices differ widely among professions.
If we take a look at the Strategic Planning and Budgeting of professional organizations, we notice that their formal strategic planning systems are not as well developed as in manufacturing organizations of comparable size. One of the reasons for this fact is, that...