464 the measures have led to significant productivity gains 1n a short time. The example concerns applied research. is harder in basic research, which relies rev1ews and patenting activity. Yet the key is active engagement between top managers and Our studies suggest R&D staff can d1rect creativity toward business strategies with- out hav1ng to give up ideas that are slightly /1 off /1 strategies are clear, progress can be assessed the idea that unconventional ideas might complement strategy can be discussed, rather than dismissed out of han d. Copyright © Christopher Loch and Staffan Tapper 2001 PART 1 O PRODUCT!ON A ND OPERATIONS f Further reading Hauser, J. (1998) llResearch, Development and Engineering Metrics, /1 Management Science 44 (12/2), 1670-89. I Kaplan, R.S. and Norton, O.P. (1996) The Balanced Scorecard, Boston, MA: Harvard Business School Press. Markides, C.C. (1999) /1 A Dynamic View of Strategy, /1 Management Review, Spring, 55_ 63 . C., Loch, C.H., and Niederkofler, M. (1998) Product Development Performance Makes a D1fference: A Statistical Analysis in the Electronics lndustry, /1 Journa/ of Product lnnovation Management, 15(1 ), 3-15. The essence of service lies in focus Rogelio Oliva is an assistant professor of business administration at Harvard Business School. Many companies are expanding into services in the search for higher margins, but customer satisfaction appears to be falling. Rogelio Oliva identifies the traits needed for success. e ompanies have become very good at managing manufacturing sys- tems: they know how to balance production lines and how to opti- mize stock reorder points and logistics. Services management represents different challenge, but sorne aspects of manufacturing models can be used to improve performance. Managers can, for exam- ple, determine the number of staff to ensure that clients will not wait for too long, find the ideal location for service facilities, and set prices that maximize revenues. Yet despite advances in technology and manufacturing, poor service proliferates . The media increasingly focus on poorly run service opera- tions and, even during a booming economy, companies seem incapable of getting services right: the US customer satisfaction index for services fell from 74.4 in 1994 to 69.4 in 1999. 1 Nature of services By definition, services cannot implement all the techniques of manufac- turing . Services differ in impor tant respects . At one level, the servers (employees) and the elements being processed (customers) are human - with psychological attributes, perceptions, and expectations - as opposed to passive machines and parts . There is a fundamental difference in how value is created . Manufacturing transforms raw materials into products. In this model, value is captured in the output of the tr ansformation process, that is, the finished good. lt makes sense to maximize output and to do things in the most efficient way . Service, in contrast , is an " act done fo r the benefit of another." Value is cr eated by the interaction of server and consumer (the process itself). Whether value is cr eated can be assessed only by the consumer , and 465