Improving Productivity in a Service Business

Abstract

Achieving increased productivity remains an important issue with many service firms. Therefore, the objective of this study was to gain insights as to how managers can improve the productivity of their service businesses. The context of the study was the hotel industry, in which the authors examined empirically the impact of labor and capital as well as selected strategic and organizational inputs on the dollar value added by the hotel. They found that regardless of hotel size, value added rose significantly with an increasing number of employees. Expanding the number of rooms available for sale as well as upscale positioning generated significantly greater value added for medium-sized hotels. The value added by large hotels was significantly enhanced when they were managed by a branded management company and were company owned. Constant returns to scale characterized the hotels. Relative to capital inputs, labor accounted for the bulk of value added.