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TRANSCRIPT
12-10-2015
1
Week 2
Vinay Kumar Kalakbandi
Assistant Professor
Operations & Systems Area
Indian Institute of Management Raipur
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Service Operations (SO) Post Graduate Program 2015-16
Agenda
• Recap
• Service economy
• Southwest Airlines case
• Strategic Service Vision
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SERVICE CLASSIFICATIONS
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Nature of Demand and Supply
Lovelock 1983
Extent of demand fluctuations over time
Extent to which
supply is
constrained
Wide Narrow
Peak demand
can usually be
met without a
major delay
Could use increases in demand
outside of peak periods
Ex) electricity, telephone, natural
gas
Must decide whether to seek
cont. growth in demand &
capacity or maintain status quo
Ex) banking, insurance, legal
services
Peak demand
regularly
exceeds
capacity
Must try to smooth demand to
match capacity- must both
stimulate and discourage
demand
Ex) theatres, hotels/motels,
restaurants
A growing organization that may
need temporary demarketing
until capacity can be reach to
meet current needs
Ex) services similar to those in
above field but with insufficient
capacity
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Managerial implications
• Managing demand in services because fluctuations can be sharp and there is no buffer of inventory between supply and demand
• What is the typical cycle period for these demand fluctuations? – Predictable- demand varies by hour of the day, day of
week/month, season of year – Random- no apparent pattern to demand fluctuations
• What are the underlying causes of these demand fluctuations? – Customer habits or preferences- could marketing change these? – Actions by third parties- employers set working hrs. hence
marking efforts might be directed at those employers – Nonforcestable events- weather conditions, health symptoms
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Managerial implications
• Smooth out ups and downs of demand:
– Decrease demand: • Encourage customers to change their plans voluntarily- Offer
discounts or added product value during times of low demand
• Ration demand through reservations or a queuing system
– Increase demand: • New business development efforts should be targeted at
prospective customers with a counter cyclical demand pattern. Ex) accounting firm has lots of business at the end of the year may find new business for the bulk of the year when it has relatively no business
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Method of Service Delivery
Lovelock 1983
Availability of service outlets
Nature of interaction
between customer and
service organization
Single Site Multiple Site
Customer goes to
service organization
Ex) theatre, barbershop Ex) bus service, fast food
chain
Service organization
comes to customer
Ex) lawn care service,
pest control service, taxi
Ex) mail deliver, AAA
emergency repairs
Customer and service
organization transact at
arms length (mail or e-
communications)
Ex) credit card company,
local t.v. station
Ex) broadcast network,
telephone company
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Service Process classification
Degree of interaction and customization
Degree of labour
intensity
Low High
Low Service Factory
Airlines
Trucking
Hotels
Resorts & recreation
Service Shop
Hospitals
Auto repair
High Mass Service
Retailing
Wholesaling
Schools
Retail banking
Professional service
Doctors
Lawyers
Accountants
Architects
Schmenner 1986 09/11/2014 Vinay Kalakbandi
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Managerial implications
• Low labor intensity – Capital decisions
– Technological advances
– Managing demand to avoid peaks and to promote off peaks
– Scheduling service delivery
• High labor intensity – Hiring, training, developing methods and controls
– Employee welfare
– Scheduling the workforce
– Controlling of far-flung geographic locations
– Managing growth
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Managerial Implications
• Low interaction and customization – faces a stiff marketing challenge
– Making the service warm
– Attention to physical surroundings
– Managing fairly rigid hierarchy with need for standard operations procedures
• Higher degree of interaction and customization – Fighting costs increases
– Maintaining quality
– Responding to consumer intervention
– Managing advancement of people delivering service
– Managing flat hierarchy with loose subordinate – superior relationship
– Gaining employee loyalty
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IMPORTANCE OF THE
SERVICE SECTOR
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Trends in U.S. Employment by Sector
0
10
20
30
40
50
60
70
80
90
Pro
po
rtat
ion
of to
tal e
mplo
yem
en
t
Year
Service
Manufacturing
Agriculture09/11/2014 Vinay Kalakbandi
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Importance of services
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Stages of Economic Development
• Three sector theory/ Structural change theory
– Clark-Fisher hypothesis
– Primary
– Secondary
– Tertiary
• Criticisms
• Rationalizations
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SERVICE STRATEGY
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Southwest Airlines
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Source: “Putting the Service-Profit Chain to Work”, Heskett et al 1994
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Source: “Putting the Service-Profit Chain to Work”, Heskett et al 1994
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Questions
1. Why has SWA been so successful for so long?
2. Why has no other competitor successfully imitated
their strategy?
3. How do you think they should continue growing in the
future?
Slide by Prof. Pierrie Dussage, HEC Paris 09/11/2014 Vinay Kalakbandi
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Strategic service vision
Target Market
• Cost Conscious
• Regional travellers
• Comparison with auto
Service Concept
• Low cost
• Fun airlines
• Convenient schedules
Operating strategy
• Low turnaround
• No meals
• Fun-oriented employee attitude
Service Delivery Systems
• Effective leadership
• Secondary airport usage
• Ticketing system
• Standard airplane
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Service Strategic Vision
• Target market segments – What are common characteristics of important market segments?
– What dimensions can be used to segment the market, demographic,
psychographic?
– What needs does each have?
• 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?
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Service Strategic Vision
• Operating strategy – How the company should be structured in order to meet
the service concept?
– Where would be the most investment of money and effort?
– How will quality and cost be controlled? Measures? Rewards? Incentives?
• Service Delivery system – Dealing with People
– Choice of technology, equipment, layout, procedures
– Capacity planning
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Today’s discussion points
• How has Southwest's original strategy been
altered in recent years? How have these changes
affected Southwest's key success factors?
• Quantitatively, estimate the importance of fast
turnaround of aircraft to Southwest Airlines?
• Would you recommend that Southwest Airlines
acquire the gates and slots available at
LaGuardia Airport? Why?
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Strategic service vision contd.
Target Market
• External
Service Concept
• Internal
Operating strategy
• External
Service Delivery systems
• Internal
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Positioning
Value-Cost leveraging
Strategy Systems
Integration
More on SSVs
• SSV is iterative and evolves over a period of
time
• Internal and External SSVs necessary
– Your service should also be directed towards your
employees
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Service Profit Chain
Internal
Operating strategy and
service delivery system
Service concept Target market
Service
value
Customers
Loyalty
Productivity
&
Output
quality
Service
quality
Capability
Satisfaction
Employees
Satisfaction
Loyalty
Revenue
growth
External
Profitability
Customer orientation/quality emphasis
Allow decision-making latitude
Selection and development
Rewards and recognition
Information and communication
Provide support systems
Foster teamwork
Quality & productivity
improvements yield
higher service quality and
lower cost
Attractive Value
Service designed
& delivered to
meet targeted
customers’ needs
Solicit customer
feedback
Lifetime value
Retention
Repeat Business
Referrals
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Customer Value Equation
• Service design process should take a Customer-
centric view
– Results Produced for the customer
– Process Quality
– Price to the customer
– Costs of acquiring the service
𝑉𝑎𝑙𝑢𝑒 =𝑅𝑒𝑠𝑢𝑙𝑡𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑑 + 𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝑄𝑢𝑎𝑙𝑖𝑡𝑦
𝑃𝑟𝑖𝑐𝑒 + 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑟𝑖𝑛𝑔 𝑡𝑒 𝑆𝑒𝑟𝑣𝑖𝑐𝑒
09/11/2014 Vinay Kalakbandi