Business, Legal & Accounting Glossary

Definition: Service

Full Definition of Service

service is primarily an intangible product, as opposed to a good.

Characteristics of services include:

  • Immediacy – produced and consumed at the same time
  • Often unique
  • Proximity to the user is high (teacher and student; doctor and patient)
  • High customer interaction
  • Inconsistent product definition
  • Often knowledge-based
  • Frequently dispersed
  • Hard to inventory and hard to transport

Service Process Design

Shows services with high and low amounts of labour and those with high and low degrees of customization. Source: Operations Management, Ninth Edition, 2008, 2006, 2004, 2001, 1999; Jay Heizer, Barry Render; Pearson International Edition

The diagram on the right was originally developed by Roger Schmenner.

In services with high labour content, the firm’s workforce and human resources are critical. Because of the interaction and (sometimes) customization, extensive training is necessary.

In the sections with low customization, we see products that are mass-market and standardized, automated, or basic (such as those of budget airlines). However, such automation is often capital-intensive (expensive). Also, customer feedback is less immediate or direct, so stringent quality standards may need to be introduced.

Items in the low labor sectors may be good candidates for schedule optimization.

Service capacity management

  • Capacity measurement can be a problem (compared to manufacturing). Matching capacity with demand can be a challenge. Matching capacity with demand is important because if there is too much demand, the company loses potential business. But if there is too much capacity, it is expending resources on that capacity (service staff, land, assets, inventory, operating expenses, and potentially much more). Therefore, demand smoothing techniques and scheduling are often employed to maximize utilization of the firm and capture the largest market possible.



Rigid capacity is a capacity that is fixed and cannot easily be changed on a day-to-day schedule. It cannot be altered based on demand. Also, any wasted capacity cannot be inventoried and used later. Following are examples:

  • Parking lot
  • Aircraft
  • Trains
  • Buses

In the parking lot example, a shopping centre may not have any cars parked (paying) at night.


In these situations, capacity can move depending on the labor force. It can synchronize with demand.

  • People-dependent systems
  • Wait staff in a restaurant
  • Maintenance staff.

Techniques for levelling demand

Demand partition

Split demand into controllable and uncontrollable sources. Organizations must work controllables around uncontrollable to smooth demand.

For example, in a hospital, there are walk-ins (uncontrollable) and people who make reservations (controllable). Because most of the walk-ins are Friday to Monday, doctors set appointments for low walk-in days: Tuesdays through Thursdays.

This maximizes service level and reduces operating costs, therefore smoothing demand.

Price incentives

Price incentives (discounts for low-demand periods) help to smooth demand.

Examples include:

  • Off-season pricing for hotels
  • Matinee rates at cinemas
  • Peak-load pricing by utilities
  • Weekend/night rates for long-distance calling
  • Early Christmas shopping

Complementary services

Examples of this smoothing technique include:

  • Restaurants add a bar, so that waiting customers are made to wait without anxiety
  • Counter-cyclical products and services (if you specialize in winter sports, start taking up summer sport product lines)


This inventories demand, so a company can fit customers nicely into their capacity. It also provides guaranteed availability to customers. Also, there is no loss of a sale for the provider because there is smoother and fuller capacity use.

Disadvantages are there could be no-shows. Airlines overbook to fight this; doctors’ offices call to confirm the day before; some companies may ask for deposits or even charge if they don’t show up.

Design factors to manipulate demand

  • Location (bank in a business park could encourage business during lunchtime or business hours)
  • Selective pricing

Other distinguishing characteristics of services include:

  • Capacity management problems
  • Labour-intensive and people-dependent
  • Quality problems
  • Lower productivity than manufacturing, lower wages
  • Highly fragmented: management and unions
  • Low barriers to entry and exit than manufacturing
  • More difficult to automate than manufacturing

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Service. Payroll & Accounting Heaven Ltd. September 24, 2020
Chicago Manual of Style (CMS):
Service. Payroll & Accounting Heaven Ltd. (accessed: September 24, 2020).
American Psychological Association (APA):
Service. Retrieved September 24, 2020, from website:

Definition Sources

Definitions for Service are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 29th March, 2020 | 2 Views.