A Stochastic Model of Resource Allocation for Service Systems

<b>Purpose:</b> In this paper we develop a resource allocation model for a service system. The uncertainty of the relationship between inputs and outputs of a process of co-creation of value by a service provider and a service recipient is modeled with a stochastic form of the technology function of each service process of the system. The model development is directed at providing useful policy prescription for service providers and a foundation for research into the nature of resource allocation policies in service industries. <b>Design/methodology/approach:</b> The model development makes use of concepts of probability theory, optimization theory and extant DEA models. <b>Findings:</b> A practical optimization for allocating resources to service processes as well as insights into the complexity of service resource management are obtained. <b>Research limitations/implications:</b> The model presented in this paper is based on constant returns to scale of the service process. Nonlinear technology functions will be the subject of future research. <b>Originality/value:</b> To date, service science lacks models for resource management that approach the usefulness of resource-management models for manufacturing enterprises even though the service economy in the industrialized world is larger than the manufacturing economy. This paper initiates a stream of model-building research. [<i>Service Science</i>, ISSN 2164-3962 (print), ISSN 2164-3970 (online), was published by Services Science Global (SSG) from 2009 to 2011 as issues under ISBN 978-1-4276-2090-3.]