What Is Labor Intensive?The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business. Show
Key Takeaways
Labor IntensiveUnderstanding Labor IntensiveLabor-intensive industries or processes require large quantities of physical effort to complete necessary tasks. In labor-intensive industries, the costs associated with securing the necessary personnel outweigh the capital costs in regards to importance and volume. While many labor-intensive jobs require low levels of skill or education, this is not true of all labor-intensive positions. Advances in technology and worker productivity have moved some industries away from labor-intensive status, but many remain. Labor-intensive industries include restaurants, hotels, agriculture, mining, as well as healthcare and caregiving. Less developed economies, as a whole, tend to be more labor-intensive. This situation is rather common because low income means that the economy or business cannot afford to invest in expensive capital. But with low income and low wages, a business can remain competitive by employing many workers. In this way, firms become less labor-intensive and more capital-intensive. Before the industrial revolution, 90% of the workforce was employed in agriculture. Producing food was very labor-intensive. Technological development and economic growth have increased labor productivity, reduced labor intensity, and enabled workers to move into manufacturing and (more recently) services. As real wages rise in the economy, it creates an incentive for firms to invest in more capital to raise labor productivity, so the firm can continue to afford the cost of more expensive labor. Special ConsiderationsA prime example of a labor-intensive industry is the agricultural industry. Jobs in this industry, which is closely related to the cultivation of foodstuffs that must be picked with minimal damage to the plant as a whole (such as fruit from fruit trees), are particularly labor-intensive. The construction industry is considered labor-intensive, as most of the required work is hands-on. Even with the use of certain tools, a person must be involved with the vast majority of the work. Many positions that are part of the service industry are also labor-intensive. These positions include those within the hospitality industry and the personal care industry. Labor costs encompass all of the costs necessary to secure the human capital necessary to complete work. These costs can include funds directed toward base wages, along with any benefits that may be given. Labor costs are considered variable, while capital costs are considered fixed. Because labor costs can be adjusted during market downturns through layoffs or reductions in benefits, labor-intensive industries have some flexibility in controlling their expenses. Disadvantages of labor costs in labor-intensive industries include limited economies of scale, as a firm cannot pay its workers less by hiring more of them, and susceptibility to wage forces within the labor market. Developing services for charities is no easy task, especially as the need for their services increases and the available funding reduces. What approach can charities use to help select the most appropriate type of service? Perhaps we can learn from research from the commercial services sector, with some adaption for the charity sector, to better understand how to make strategic choices about service types. Schmenner’s Service Process Matrix (Schmenner, 1986) classifies services by the amount of in-person support is required from employees to enable the service to function, and by the amount of customer contact and/or customisation the service requires.  We could apply the same thinking to charity services, but change the language to help us move away from the commercial mindset and towards a greater focus on the needs of the beneficiaries of the charity services. ‘Customer contact/Customization’ refers to whether the service is offered in the same way to all customers or is customised for each customer. It could be renamed ‘Service-user’s need’ in our charity adaption of the model with more complex needs in the right hand column of the diagram and less complex needs to the left. This axis tells us that there is a notional threshold point at which a charity designing a service needs to decide whether the complexity of the service-user’s needs are sufficient to suggest the service should use a model in the right hand column, or simple enough for a model in the left hand column to apply. Schmenner talks about ‘Labor intensity’ as a ratio between people and machinery, so a low-intensive labor business uses more technology than people in delivering its services (the top row of the diagram) whilst the opposite is true for a high-intensive labor business (the bottom row of the diagram). For our charity adaption we should keep this definition of labor intensity as it gives us a sense of the balance between people and their time and the technology used, but expand it to include other available resources such as funding and skills as these greatly affect a charity’s ability to deliver services. We can rename it ‘Available resources’. This axis tells us that there is a decision to be made about whether to use a model from the top or bottom row based on an understanding of the resources the charity has to implement the service. Service FactorySchmenner gives the examples of airlines and hotels as Service Factory services because of the low customer contact & customization – everyone gets the same service, and low labor intensity – the ratio of effort by people in delivering the service is less than the equipment, buildings and aeroplanes in this example. An example for a charity might be a website with information about self-examination for testicular cancer or self-service web portal that allows the booking of a counselling session. These require little human effort and utilise a greater degree of technology to deliver the service. This type of service works well where the service-user’s needs are less complex, such as needing to source simple information, and where technology can be implemented to meet that need. Service ShopServices with low labor intensity / resource needs but high customer customization / service-user’s need are classified as Service Shops. Service Shops can provide various types of customized services for the service-users but rely on more technology/capital resources than human effort to deliver the service. Charities might use a Service Shop model to deliver individualised support pathways for young people getting into training. Each young person using the service receives support, mentoring and training that meets their needs, and the majority of the service is provided through technology such as a Learning Management System for training courses and video calls for mentoring. Mass ServiceMass Services have low customer contact/customization in combination with high labor intensity, meaning that everyone gets the same service but it requires people to provide the majority of it. Schools use this model, providing every student with the same curriculum which is predominantly delivered by lots of in-person contact with the teacher delivering the service. Charities use the Mass Service model to deliver services that are difficult to deliver using technology but don’t require a great deal of customisation in order to meet the needs of the service-user. Charity shops fit this model (although existing to generate income rather than meet the needs of service-users) as they require employees and volunteers to sort stock, serve customers, etc., all tasks that could not easily be automated. Charity shops offer the same service to all customers – buying stuff – and don’t change that based on the customer’s needs. The Mass Service model is often used where a service needs to grow through replication, that is, in our charity shop example, opening another charity shop that works in the same way as every other charity shop. This is because recruiting more people to run the same service in a different location. Professional ServiceThese services have both high customer contact/customization and a high degree of labor intensity, and tend to be highly customized according to the particular situation/need of each customer. Charities providing expert legal advice for people experiencing domestic abuse or facing homelessness are utilising the Professional Services model. The high degree of education, skill and time required to deliver the service explain why this is high in ‘Available Resources’, and the high complexity of the need, including dealing with landlords, benefits system, courts, etc., explain why this service requires greater customisation in order to met the specific needs of each individual. How to use this in designing a charity serviceChoosing an appropriate service modelWhen initially designing a service the most appropriate model should be selected from the four types. To design and attempt to deliver a service that uses the Professional Service model when a charity doesn’t have the necessary resources will result in the service only meeting the needs of a few. And to provide a service built on a Service Factory or Mass Service model when the needs of those using the service are highly complex will result in the needs of those service users not being fully met by the service. Multiple service models to make up a serviceThe complete service doesn’t have of only use one type, in fact a service could be designed with different parts of the service using different models where the complexity of need differs throughout the entirety of the service and where some parts could use technology to a greater degree than others. Trading off needs and resourcesIn reality, there is always a trade off. The service user needs might be highly complex, for example a family dealing with a parent with terminal cancer, and requiring a high degree of resourcing, for example many hours of one-to-one care by a specialist nurse, but the charity simply does not have enough nurses to meet the needs of patient and family members. The charity then needs to decide whether to continue to offer the Professional Service model of support, either to fewer people or for fewer hours, or to redesign the service using a different model. Or sometimes, the difficult decision to decide that they are not the right charity to be providing the service. Shifting service type with changing needs and resourcesDesigning a service of one type doesn’t necessarily mean that it should continue to use that type. If there is a change in the needs of the service users (becoming more or less complex over time), or a change in the available resources (introduction of better technology, more time and funding, improved skills) then charities should be able to shift the service to a different model. If a service is delivered using a Service Factory model because that was appropriate at the time of initially building the service, but then the needs of the service-users become more complex then the service could be moved to utilising a Service Shop model to achieve better outcomes. Similarly, if a charity was providing a service using the Professional Services model but then experienced a reduction in funding that meant they no longer had the resources available to deliver the service in that way, then they should be able to redesign the service using a Service Shop model to ensure a service can still be delivered. ConclusionSchmenner’s Service Process Matrix, with some adaption, offers an interesting model to conceptualise the types of services designed and delivered by charities. It provides some practical direction in choosing a service type based on the resources the charity has available and the complexity of needs of the service-users, and guidance on responding the changing needs, both within the charity and from the people who benefit from the service. Perhaps the important realisation here is that increasing the capacity of an existing service is not the only way to respond to changing needs, and reducing the capacity of a existing service is not the only way to respond to a reduction in funding, and/or employee and volunteer availability. Charities can respond to change by shifting service model. ReferencesVerma, R., & Boyer, K. K. (2000). Service classification and management challenges. Journal of Business Strategies, 17(1), 5-24. Cornell University, School of Hospitality Administration site: http://scholarship.sha.cornell.edu/articles/59/ Schmenner, Roger W., How Can Service Businesses Survive and Prosper?, Sloan Management Review, 27:3 (1986:Spring) p.21 Post navigationWhich is an example of high degree of interaction and high intensity service?Doctors, lawyers, accountants, architects, and investment bankers are typical service providers that tend to be labor intense and have a high degree of customer interaction and customization.
What is the service process?We can define the service process as the way in which a company works so that a customer receives service. To standardize this in line with the company's identity and aims, managers will work on: Determining procedures which contribute to the process. Allocating tasks and responsibilities.
Which quadrants are in the service process matrix?The service process matrix is comprised of four quadrants; mass service, professional service, service factory, and service shop.
What is Product Process matrix?The product process matrix merges the product lifecycle, which encompasses all aspects of the product development process—from ideation to a product's growth or decline— with the process lifecycle, the progression towards a more cost-effective and productive standardized structure.
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Which of the following is a service provider that has low customer contact in combination with high labor intensity?
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