Cutting costsSubstitution of capital for labor is the classic method of obtaining operating leverage in both product- and service-oriented businesses. Capital is used to purchase machinery which can produce a product or service at a faster rate with more consistent quality. Many service businesses have followed this path of development. Twenty years ago, virtually all car washes used unskilled labor; today, most are automated. When the tasks cannot be automated because human judgment must be exercised, cheap labor an often be substituted for expensive labor as a means of obtaining operating leverage. This is often the case in people-based service businesses, and law firms are expert in the practice. A large percentage of the tasks are routine and require little legal expertise. Value engineering The process of value engineering has become popular in many manufacturing companies in the last decade to determine what changes in design and/or manufacturing process can be made to reduce the cost of ma The goals are to determine what parts of the service are essential, what parts can be eliminated, and what minor additions could greatly enhance the service. Although they have not called it value engineering, a number of service businesses have used the technique. Perhaps the best current example is provided by Holiday Inns. This company has promoted the service as one that has no surprises. The quality of service has been set at a level that does not provide the extras that one would find at an expensive hotel. The service is guaranteed to be of consistent quality throughout the country. The company believes that consistent quality with no surprises is more important to its customers than swimming pools and other added services; therefore, the emphasis is on maintaining the quality of the primary service.