Chapter 03 Service Strategy

McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Strategic Service Vision Target Market Segments

What are common characteristics of important market segments?

What dimensions can be used to segment the market, demographic, psychographic?

How important are various segments?

What needs does each have?

How well are these needs being served, in what manner, by whom?

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Strategic Service Vision Service Concept

What are important elements of the service to be provided, stated in terms of results produced for customers?

How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others?

How do customers perceive the service concept?

What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed?

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Strategic Service Vision Operating Strategy

What are important elements of the strategy: operations, financing, marketing, organization, human resources, control?

On which will the most effort be concentrated?

Where will investments be made?

How will quality and cost be controlled: measures, incentives, rewards?

What results will be expected versus competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers?

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Strategic Service Vision Service Delivery System

What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures?

What capacity does it provide, normally, at peak levels?

To what extent does it, help insure quality standards, differentiate the service from competition, provide barriers to entry by competitors?

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Southwest Airlines Strategic Service Vision

Service Delivery System Operating Strategy Service Concept Target Market Segment

• Fun cabin atmosphere to

differentiate service

• Use only Boeing 737

aircraft to control

maintenance and

operating costs

• Hire cabin crew based on

attitude

• Quick turnaround at gate

results in high

utilization of aircraft

• No assigned seating

rewards punctuality

and promotes on-time

performance

• Short flights with

frequent departures •

Serve peanuts and

soft drinks only

• Use of inner-city or low

traffic airports avoids

congestion

• Carry-on luggage

• State of Texas residents

• Business traveler who

drives because of

inadequate service

• Inexpensive family travel

on weekends

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Competitive Environment of Services

Relatively Low Overall Entry Barriers

Economies of Scale Limited

High Transportation Costs

Erratic Sales Fluctuations

No Power Dealing with Buyers or Suppliers

Product Substitutions for Service

High Customer Loyalty

Exit Barriers

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Competitive Service Strategies (Overall Cost Leadership)

Seeking Out Low-cost Customers

Standardizing a Custom Service

Reducing the Personal Element in Service Delivery (promote self-service)

Reducing Network Costs (hub and spoke)

Taking Service Operations Off-line

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Competitive Service Strategies (Differentiation)

Making the Intangible Tangible (memorable)

Customizing the Standard Product

Reducing Perceived Risk

Giving Attention to Personnel Training

Controlling Quality Note: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service.

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Competitive Service Strategies (Focus)

Buyer Group: (e.g. USAA insurance and military officers)

Service Offered: (e.g. Shouldice Hospital and hernia patients)

Geographic Region: (e.g. Austin Cable Vision and TV watchers)

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Customer Criteria for Selecting a Service Provider

Availability (24 hour ATM)

Convenience (Site location)

Dependability (On-time performance)

Personalization (Know customer’s name)

Price (Quality surrogate)

Quality (Perceptions important)

Reputation (Word-of-mouth)

Safety (Customer well-being)

Speed (Avoid excessive waiting)

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Winning Customers in the Marketplace

Availability

Convenience

Dependability

Personalization

Price

Quality

Reputation

Safety

Information

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Competitive Role of Information in Services

Strategic Focus Competitive Use of Information

On-line Off-line

(Real time) (Analysis)

Creation of barriers to entry: Data base asset:

External Reservation system Selling information

(Customer) Frequent user club Development of services

Switching costs Micro-marketing

Revenue generation: Productivity enhancement:

Internal Yield management Inventory status

(Operations) Point of sale Data envelopment

Expert systems analysis (DEA)

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Limits in the Use of Information

Anti-competitive (e.g. Barrier to entry)

Fairness (e.g. Yield management)

Invasion of Privacy (e.g. Micro-marketing)

Data Security (e.g. Medical records)

Reliability (e.g. Credit report)

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Using Information to Categorize Customers

Coding grades customers on how profitable their business is.

Routing is used by call centers to place customers in different queues based on customer code.

Targeting allows choice customers to have fees waived and get other hidden discounts.

Sharing data about your transaction history with other firms is a source of revenue.

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Stages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery

Customers patronize service Customers neither seek Customers seek out the firm The company’s name is synonymous

firm for reasons other than out nor avoid the firm. on the basis of its sustained with service excellence. Its service

performance. reputation for meeting doesn’t just satisfy customers; it

customer expectations delights them and thereby expands

customer expectations to levels its

competitors are unable to fulfill.

Operations is reactive, Operations functions in a Operations continually excels, Operations is a quick learner and fast

at best. mediocre, uninspired reinforced by personnel innovator; it masters every step of the

fashion. management and systems service delivery process and provides

that support an intense capabilities that are superior to

customer focus. competitors.

SERVICE QUALITY

Is subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations and

highly variable. expectations; consistent expectations; consistent seeks challenge; improves

on one or two key on multiple dimensions. continuously.

dimensions.

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Chapter 04 New Service Development

McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Innovation in Services

Basic Research: Pursue a planned search for new knowledge regardless of possible application.

Applied Research: Apply existing knowledge to problems in creation of new service.

Development: Apply knowledge to problems to improve a current service.

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Challenges for Service Innovation

Ability to protect intellectual and property technologies.

Incremental nature of innovation.

Degree of integration required.

Ability to build prototypes or conduct tests in a controlled environment.

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Levels of Service Innovation

Radical Innovations

Major Innovation: new service that customers did not know they needed.

Start-up Business: new service for underserved market.

New Services for the Market Presently Served: new services to customers of an organization.

Incremental Innovations

Service Line Extensions: augmentation of existing service line (e.g. new menu items).

Service Improvements: changes in service delivery process (e.g. self-service boarding kiosk).

Style Changes: modest visible changes in appearances.

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Technology-Driven Service Innovations

Source of

Technology

Service Example Service Industry Impact

Power/energy Jet aircraft

Nuclear energy

International flight is feasible

Less dependence on fossil fuel

Facility design Hotel atrium

Enclosed sports stadium

Feeling of grandeur/spaciousness

Year-around use

Materials Photochromic glass

Synthetic engine oil

Energy conservation

Fewer oil changes

Methods Just-in-time (JIT)

Six Sigma

Reduce supply-chain inventories

Institutionalize quality effort

Information E-commerce

Satellite TV

Increase market to world-wide

Alternative to cable TV

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Service Design Elements

Design Elements Topics

Structural

Delivery system Process structure, service blueprint, strategic positioning

Facility design Servicescapes, architecture, process flows, layout

Location Geographic demand, site selection, location strategy

Capacity planning Strategic role, queuing models, planning criteria

Managerial

Information Technology, scalability, use of Internet

Quality Measurement, design quality, recovery, tools, six-sigma

Service encounter Encounter triad, culture, supply relationships, outsourcing

Managing Capacity and

Demand

Strategies, yield management, queue management

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New Service Development Cycle

People

Technology Systems

Product

Full Launch Development

Design Analysis

Tools

Enablers

• Formulation

of new services

objective / strategy

• Idea generation

and screening

• Concept

development and

testing

• Business analysis

• Project authorization

• Full-scale launch

• Post-launch review

• Service design

and testing

• Process and system

design and testing

• Marketing program

design and testing

• Personnel training

• Service testing and

pilot run

• Test marketing

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Service Blueprint of Luxury Hotel

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Strategic Positioning Through Process Structure

Degree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital.

Degree of Divergence: Amount of discretion permitted the server to customize the service. For example the activities of an attorney contrasted with those of a paralegal.

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Structural Alternatives for a Restaurant

No Reservations

Self-seating. Menu on Blackboard

Eliminate

Customer Fills Out Form

Pre-prepared: No Choice

Limit to Four Choices

Sundae Bar: Self-service

Coffee, Tea, Milk only

Serve Salad & Entree Together:

Bill and Beverage Together

Cash only: Pay when Leaving

TAKE RESERVATION

SEAT GUESTS, GIVE MENUS

SERVE WATER AND BREAD

TAKE ORDERS

Salad Bar

Entree (6 choices)

Dessert (6 choices)

Beverage (6 choices)

SERVE ORDERS

CASH OR CREDIT CARD

Specific Table Selection

Recite Menu: Describe Entrees & Specials

Assortment of Hot Breads and Hors D’oeuvres

At table. Taken Personally by Maltre d’

Salad (4 choices)

Expand to 10 Choices: Add Flaming Dishes;

Bone Fish at Table

Expand to 12 Choices

Add Exotic Coffees; Wine list, Liqueurs

Separate-courses; Hand Grind Pepper

Choice of Payment. Including House Accounts:

Serve Mints

LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE

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Taxonomy of Service Processes

Low divergence High divergence

(standardized service) (customized service)

Processing Processing Processing Processing Processing Processing

of goods Information of people of goods Information of people

Dry Check Auto repair Computer

No Cleaning processing Tailoring a programming

Customer Restocking Billing for a suit Designing a

Contact a vending credit card building

machine

Ordering Supervision

Indirect groceries of a landing

customer from a home by an air

contact computer controller

No Operating Withdrawing Operating Sampling Documenting Driving a

customer- a vending cash from an elevator food at a medical rental car

service machine an ATM Riding an buffet dinner history Using a

worker Assembling escalator Bagging of health club

interaction premade groceries Searching for facility

(self- furniture information

Direct service) in a library

Customer Customer Food Giving a Providing Home Portrait Haircutting

Contact service service in a lecture public carpet painting Performing

worker restaurant Handling transit cleaning Counseling a surgical

interaction Hand car routine bank Mass Landscaping operation

washing transactions vaccination service

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Generic Approaches to Service Design

Production-line • Limit Discretion of Personnel • Division of Labor • Substitute Technology for People • Standardize the Service Customer as Coproducer

• Self Service • Smoothing Service Demand

• Customer-Generated Content Customer Contact

• Degree of Customer Contact • Separation of High and Low Contact Operations

• Sales Opportunity and Service Delivery Options Information Empowerment

• Employee • Customer

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Customer Value Equation

erviceuiringtheSCostsofAcqice

tyocessQualioducedsultsValue

Pr

PrPrRe

4-29