Measurement of Services Industry Efficiency Alireza Shahraki Department of Industrial Engineering University of Sistan and Baluchestan, Zahedan, Iran

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1 MAY VOL 4, NO Measurement of Services Industry Efficiency Alireza Shahraki Department of Industrial Engineering University of Sistan and Baluchestan, Zahedan, Iran Abstract Role of service sector is very important in countries development and growth. Hence there is a need to have a method for measuring efficiency of this sector and its efficient factors. In this study, a model is offered with the use of dynamic system and delivered mind model and efficiency definition that efficiency can be defined in services sector. Then I use them in a service firm in Iran and related data for a decade. Keywords: Services Sector, Measurement, Efficiency, Industries Introduction Efficiency is yield ratio of real yield to scale and determined (anticipated) yield or it is actually the ratio amount of work that is done to work that should be done. (Kazemi, 7, p.4) At first, Dynamics` mechanisms and basics of system are offered and surveyed in 94s and 95s. System dynamic is a way of understanding for defined kinds of system complex problems. This actually results from industry and its problems. Its first work related to some management issues like instability in production and employment, low growth or incompatibility with organizations activities and reduced market share. System dynamics that was known as industry dynamics has expensive application in solving different problems in their early emergence. This phenomenon has expanded in a range from development and research management to city planning, demolishing and growth of human society population, perception of exponential growth and its states in finite world and natural resources reduction and even medicine theories test like Diabetes (Hamidi zade, : p.34) In this study we seek a model for increasing efficiency in service companies with the use system dynamics, causality graphs are used to make dynamic model, i.e. we use these graphs in order to apply mind models to system program and actually we change a subjective model to objective model with the use of these graphs (Caulfield, ). We use efficient parameters for making this model. Finally, we change these causality graphs to circular diagram with the use of Vensim software (Kirkwood, ) in order to obtain desired results. Services Services are any activity or advantage that is delivered by one to the other and it is necessarily insensible and there is no ownership (Katler, Philip & Armstrang 998). Measurement Measurement or examining is estimation process of characteristic size of something (Douglas Halberd, John Willy and boys, 7). Efficiency It is a concept that assesses the cost of consumed resources in obtaining goal. Comparison of consumed outputs with inputs clarifies the efficiency amount. For efficiency measurement, human resource cost, equipment cost, facilities maintenance, capital return rate and similar things are concerned. (Rezaian, Ali, 7). Efficiency measurement Farrel, for the first time, offered a method for efficiency measurement in 957. He suggested it is better to compare performance of an enterprise with best enterprises available in industry. That is, an index must be made for determining enterprise non-efficiency as a comparison criterion. Farrel also started his work in efficiency measurement based on works of Dembero in 95 and Komans in 95. System dynamics With changing industry dynamic to system dynamics, this phenomenon was changed into perception method and recognition defined variety of complex problems in a system, solution, planning, monitoring and its components coordination. Problems in this system enjoy two characteristics that are dynamic and feedback structure. Based on dynamic feature, quantitative and qualitative aspects of system are changed during the time and based on system feedback structure; it delivers some information during its transformation in each step to previous and next step. (Hamidi Zade,, p.34) Simulation model of system dynamics There must be considered seven stages in dynamics studies that are problem definition, model conception, model formulation, simulation, evaluation for collecting models, policy analysis and using model. It is essential to have an appropriate perception of system and its problems from first to the end in process of system dynamics mode collecting and actually this process starts by system perception and it ends by system perception. (Hamidi COPY RIGHT Institute of Interdisciplinary Business Research 56

2 MAY VOL 4, NO Zade,, p.35). In these studies, problem recognition step and model conceptualization are assumed without much specialty. Modeler offer conceptual and symbolic statements in these stages and while behavior symbols are adjusted and model making targets are edited, system boundary is clarified and its structure is edited based information and operation feedback loops (M.close, ). Problem recognition is due to awareness of problem and its components and a clear definition of that. This stage is actually a content word and problem symbols definition. Problem definition must be offered dynamically and based on variables behavior. (Hamidi Zade,, p.37). Casual Loops After designing first mind model, causal loops are drawn. Loop-causal graphs are those that besides determining causal relations among two or more variables, they clarify variables effect direct. For example, if A increases, then B will increase and if B also increases, then A will increase. This effect is two-sided, while if A just influence on B, effect will be one-sided. (Hamidi Zade,, p. 4). In system dynamics, two inductive models of causal-loop and current are used to determine and forecast problems. Casual-loop graphs models determine casual relations for every two variables. In this model making, direction and relation type (positive or negative) are determined while in current analogous all models which are used in casual-loop (effected) graphs are categorized into surface variable, auxiliary current, exogenous, etc. Based on this categorization with use of geometry symbolic shapes, variables and parameters of loop-casual graphs are drawn with more detail. (Hamidi Zade,, p. 9) For drawing casual loops, following steps should be done: a. Causality instead of correlation b. Bond polarity determination c. Loop polarity determination d. Name the loops (Forrester, 989). Simulation software (Vensim) After turning mind model into casual loops and then changing them to current circular diagrams, now Vensim software is used for simulation and application that numbers or every parameters and math equations are entered in software and then desired analysis are done on the model and results are obtained. Dynamo equations are considered math equation that during the time are used to determine and forecast model variables and recognition of their behavior (Hamidi zadeh,, p.) Research plan Analytic-descriptive method is used in this research. Skills such as observation, description and analysis are used in descriptive researches. Some theories and research questions are made and tested in this research and logical methods of inductive reasoning-deductive is used to achieve decisions or general rules and on the other hand they define completely and precisely variables and methods as much as possible as other researchers can repeat research (Best, 995) Analytic is also include an approach which consider situation definition of some phenomena in a specific time or extending that in a specific period of time and documents are analyzed and they are categorized as problem recognition, theory adjustment and regular observation among variables that could lead to extension. (Sharifie et.al, 995: p.4). Therefore, in this study, it is tried to recognize variables which are related to efficiency and their relations. For doing so, at first a mind model is considered in which there are different parameters include revenue, costs, investment, production and delivering service, etc. These variables are related and every parameter influence on other parameters. Research scope Research scope is a decade of organization activity that is a service company in Iran. Sample One Service Company located in one of Iran provinces in association with its branches across that province was selected. Data collecting method All collected data in this research that are entered to model as entry data are from service company in Iran and related centers and a part of that are obtained based on document library studies. And in another part, expert interviews are used. Validity Validity means that scale and tools exactly measure variables and under-study subject, i.e. neither collected data by tools are surplus nor a part of required data related to variables measurement in tools content are removed. In other word, it shows objectivity of reality. Naturally using incorrect tools cause to collect unrelated data and COPY RIGHT Institute of Interdisciplinary Business Research 57

3 MAY VOL 4, NO make no discipline in research steps and data analysis and also it causes to waste manpower and facilities and finance resources and also it make concluding impossible. (Hafez nia, 5: p.55). Therefore, the most important feature for a research is validity. Validity actually is closeness between results and targets of a research. It means how results of a research are close to answers of research. Thus, test validity depends on implications appropriateness based on test results. We can not say that whether a test has validity or not, but every test has a specific degree of validity (Alvanie, 4: p.33). Well-known theories and management accepted theories are used in this study. Loop casual graphs and current and accumulated graphs are used for construction representation as important tools. These tools are used in university studies for consecutive years and also they are utilized in commercial and trade problems. Therefore they have essential validity. Durability Tools durability is interpreted as credit, exactness and reliability; it means that a measurement tool that is made for measuring a variable and feature, if it is used in other time and place, same results should be obtained. In other word, a tool with valid durability is a tool that has reproducibility property and same results measurement. (Hafez Nia, 5: p. 55) Because research method in this research is different from other methods, sensitivity analysis method is used to test the durability of measurement tool. (Sterman, : p.859). If different values are entered in analysis model in this method, results of first data that are obtained after model application are reasonable. Now sensitivity analysis method is assessed about efficiency level evaluation model for selected service company. After designing efficiency level evaluation model current diagram of that company, it will be apply by Vensim software. Now with changing one of model parameters, durability of model measurement tool is proved. For example, sale item changed from 3965 to 3 and turn into 6965 through branch. Now with this change, it is observed that changes are made in other parameters. That is, with changing sale amount through branch, value of other parameters related to this item also changed. Changes in other parameters can be seen as graph and table below. It is clear that increasing sale by a branch is a key factor in this industry, components like production, revenue and costs will be increase and finally increasing revenue will lead to more efficiency. Reverse is true it means that reducing this item, related components are reduced and it leads to low efficiency. In all parts of table and graphs,,3 and 4, red color relate to before changes and blue color relate to after changes. Table : The effect of sale factor change through branch on efficiency and production components year Run Current run current e+6.68e e+6 3.6e e e e+7.5e e+7 3.5e e+7 6.3e e+8.3e e+8.46e+8 COPY RIGHT Institute of Interdisciplinary Business Research 58

4 MAY VOL 4, NO Table : The effect of sale factor change through branch on cost and total income Year Run current e+6.45e e+6.45e e+6 7.7e e+7.46e e+7 3.e e+7 6.7e e+8.e+8.76e+8.45e+8 efficiency run current The Figure : The Impact changes sales of the branches on the level of efficiency COPY RIGHT Institute of Interdisciplinary Business Research 59

5 MAY VOL 4, NO Investment, production and services 4 M 3 M M M run current Figure : The Impact changes sales of the branches on the production and services COPY RIGHT Institute of Interdisciplinary Business Research 6

6 MAY VOL 4, NO Total cost 4 M 3 M M M 4 M run current Figure 3: The Impact changes sales of the branches on Total cost Total Income 3 M M M run current Figure 4: Diagram of sales changes through branch on total income In delivered sample in this research, efficiency level is determined by output to input set, output is sale or total income and input is investment rate and total cost. According to model of casual loops diagram, it can be seen that these three main factors and related factors are included in model. Investment directly effect on efficiency and it relates to production and increase efficiency, on the other hand production and service delivery is effective on income and cost. Many factors affect on production, cost, income and investment that can be shown in model. Human resource also is another factor that affect on efficiency level through relation with production. It means that investment, production and human resource are three factors that are effective on efficiency, as it COPY RIGHT Institute of Interdisciplinary Business Research 6

7 MAY VOL 4, NO is shown in diagram of model casual loops. Parameters in model are also effective on other parameters that this effectiveness could be increasing or decreasing. These parameters can be investment, production and costs that are effective on efficiency. Evaluating the relation among parameters it is obvious that other feature of validity relation of information- is observed and all parameters have reasonable and rational relation and according to type of parameter this relation is increasing or decreasing on other parameter. There is also a reasonable and rational relation among results of data and model application and it is not random. On the other hand it is expected that costs increase has decreasing effect on efficiency and also income increase has increasing effect on efficiency that by model application it can be seen that is true. Therefore, model behavior is reasonable against changes and it show model sensitivity for changes. Efficiency model analysis in service sector By evaluating model, it can be seen that a parameter for instance, sale through branch is a factor that is very effective in total income increase that its amount is 3965 units in and total income was 3 units in the same year. If parameter increase (reduce) sale through branch cause to increase (reduce) sale and because of that income level increase (reduce) and make efficiency level more (less). With model application we can see that by increasing sale through branch to 3965 units per year, total income with initial value 3 units will start. This amount will reach to units in. Now with changing sale through branch from 3695 to 6695 units and model application, total income also change 7667 to 7967 and in this way with a ascending trend it will reach from to units that this can be observed clearly by comparing graphs and tables that are related to sale through branch and total income for every one on these components in both states. Table 3: The effects increase sales of the branches on the Total income year run current e+6.76e e e e+6 8.9e e+7.66e e e e e e+8.37e+7 9.9e+8.75e e+8 5.5e+8 COPY RIGHT Institute of Interdisciplinary Business Research 6

8 MAY VOL 4, NO Total income 6 M 45 M 3 M 5 M run current Figure 5: Changes total income on " sales of the branches " to units In diagram 5, total income curve in initial state and with sale through branch with 3965 units that are shown by red color and also blue color related to total income with change rate of sale through branch with 6965 units. As it is shown, level of blue curve is upper that red curve. And in this way, efficiency level and other levels available in model can be shown by changing sale through branch. That is, efficiency is increased by sale increase through branch that is demonstrated in diagram 6 and table 4 below. With changes on other parameters and model application, parameters effect on each other can be seen clearly. In following for completing model analysis, another factor of production is changed and its impacts on other factors are defined by different diagrams and tables. For example, parameter of sales agencies is another factor that has an effective and direct relation on income increase that its amount is 6 units in and production has been 3 units in the same year, i.e. increase (reduction) of sales agencies make increase (reduction) sales through agencies and it make increase (reduction) of insurance policy sale and finally make income increased (reduced). On the other hand, increase (reduction) of total income makes efficiency level upper. With model application we see that with increasing sale agencies to 6 units per year, the amount of total income with initial value of 3 will start. This amount will reach to in. With respect to new conditions for sales agencies changes, model performed three times and in every performance, data and curves related to every component will be saved and necessary results can be concluded from them. Now with changing this parameter from 6 to 7 and 8 units, diagrams and tables of model analysis is mentioned below: On the other hand, tables related to parameters changes are like below: COPY RIGHT Institute of Interdisciplinary Business Research 63

9 MAY VOL 4, NO efficiency Year run current e+6.76e e e e+6 8.9e e+7.66e e+e7 3.38e e7 6.83e e e+8.75e e+8 5.5e run current Figure 6: Changes efficiency "sales through branches" to units On the other hand, tables related to parameters changes are like below: In all tables 5 and 6, green column is related to current with sales agencies 6 units and red column is related to run with sales agencies 7 units and blue column is related to run with sales agencies 8 units. It means that column amounts of every parameters are gained by regarding sales agencies changes and effect of these changes in tables are clear with respect to values and the same ascending trend are observed in tables of every parameter. Table 5: Impact changes from 6 to 7 sales representatives on total income Year run current e+6.76e e e e+6 8.9e e+7.66e e+e7 3.38e e7 6.83e e e+8.75e e+8 5.5e+8 COPY RIGHT Institute of Interdisciplinary Business Research 64

10 MAY VOL 4, NO Table 6: Impact changes from 6 to 7 sales representatives on efficiency Year run current Sales representative run run current Figure 7: Changes from 6 to 7 sales representatives and 8 COPY RIGHT Institute of Interdisciplinary Business Research 65

11 MAY VOL 4, NO Total Income 6 M 3 45 M 3 M 3 5 M run run Figure 8: Impact changes from 6 to 7 sales representatives and 8 units on total income Total Cost 3 current M 3 45 M 3 M 3 5 M run run Figure 9: Changes from 6 to 7 and 8 units of sales representatives on the total cost 3 current COPY RIGHT Institute of Interdisciplinary Business Research 66

12 MAY VOL 4, NO efficiency run current run Figure : Changes from 6 to 7 and 8 units of sales representatives on the efficiency level In all diagrams 7,8,9 and, related to sales agencies changes, current curve is green with target center 6 units and Run is red with target center 7 units and Run is blue with target center 8 units that curve of related parameters is gained with respect to theses changes and parameters level will be increase with an ascending trend. Conclusion In this research, assessing efficiency level in service sector in a service company in a province of Iran lead to making an efficiency measurement model in services sector that is designed with use of mind model. After designing, delivered model by Vensim software run for service companies among to, also desired model is analyzed and related tables and diagrams are delivered. Generally according to model application, it is clear that all available parameters on model are effective on efficiency level. With increasing or decreasing some parameters, efficiency respectively increase or decrease and also with increasing and decreasing some other parameters, efficiency increase or decrease, respectively. For instance, with increasing every parameter related to income, investment and production and service delivery, efficiency level will increase and with decreasing them, efficiency level will decrease. Also with increasing every parameter related to total cost, efficiency level will decrease and with decreasing them, efficiency level will increase. COPY RIGHT Institute of Interdisciplinary Business Research 67

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