Death Spirals and Virtuous Cycles

While the productivity and quality of manufactured products steadily improve, service sector productivity lags and quality has fallen. Many service organizations fall into “death spirals” in which pressure to boost throughput and control costs leads to worker burnout and corner cutting, lowering service quality, raising costs while revenue falls, forcing still greater cuts in capacity and even lower quality. We present a formal model to explore the dynamics of service delivery and quality, focusing on the service quality death spiral and how it can be overcome. We use the system dynamics modeling method as it is well suited to dynamic environments in which human behavior interacts with the physics of an operation, and in which there are multiple feedbacks connecting servers, managers, customers, and other actors. Through simulations we demonstrate that major recurring problems in the service industry—erosion of service quality, high turnover, and low profitability—can be explained by the organization’s internal responses to work pressure. Although the reinforcing feedbacks can operate as virtuous as well as vicious cycles, the system is biased toward quality erosion by basic asymmetries and nonlinearities. We show how, with the right mix of policies, these same feedbacks can become virtuous cycles that lead to higher employee, customer satisfaction and additional resources to invest in still greater service quality improvement.