Cutting cost in service systems: Are you running with scissors?

Thenent, Nils; Settanni, Ettore; Parry, Glenn; Goh, Yee M; Newnes, Linda

Abstract

A rigorous link between the domains of cost estimation, systems theory and accident investigation reveals fundamental epistemological limitations of commonly employed cost models when dealing with the characteristics of systems, particularly service systems, which may hinder the ability to take appropriate action for cost reductions.
Key points:
1. The ability to take action, in particular related to cost reductions in service systems, is strongly influenced by the understanding (epistemological assumptions) underlying a decision-support tool, in this case a cost estimate.
2. There is a conflict in the underlying epistemological assumptions about what is and can be known in such a socio-technical system as a service system.
3. A managerial perspective of cost estimation which neglects the essential characteristics of service systems may drive behaviour which is locally optimised but creates tension or failure at the system level.
4. Cost cutting decisions that are based on a flawed understanding of the situation can lead to counter-intuitive outcomes for organisations; hence practical guidance is needed to help managers consciously consider the underlying epistemological assumptions in a given situation.

• Journal Article Type: Article
• Publication Date: Aug 19, 2014
• Publicly Available Date: Jun 6, 2019
• Journal: Strategic Change: Briefings in Entrepreneurial Finance
• Print ISSN: 1099-1697
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 23
• Issue: 5-6
• Pages: 341-357
• DOI: https://doi.org/10.1002/jsc.1981
• Keywords: servititization, cost modelling, complex service, aerospace
• Public URL: https://uwe-repository.worktribe.com/output/813544
• Publisher URL: http://dx.doi.org/10.1002/jsc.1981
• Related Public URLs: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-1697
• Additional Information: Additional Information : First published online 19 August 2014. This is the pre-peer reviewed version of the following article: Thenent, N., Settanni, E., Parry, G., Goh, Y. M. and Newnes, L. (2014) Cutting cost in service systems: Are you running with scissors? Strategic Change: Briefings in Entrepreneurial Finance, 23 (5-6). pp. 341-357. ISSN 1099-1697, which has been published in final form at http://dx.doi.org/10.1002/jsc.1981.