service systems management and engineering · 2010. 7. 7. · 1.9 challenges in the new millennium...

Service SystemsManagement andEngineeringCreating Strategic Differentiation andOperational Excellence

C. M. ChangThe State University of New York at Buffalo

WILEY

JOHN WILEY & SONS, INC.

Contents

Preface xxiAcknowledgments xxix

Chapter 1 Introduction 1

1.1 Introduction 1

1.2 Services versus Products 1

1.3 Service Sectors 7

1.4 System-Integrative View of Service Enterprises 10

1.5 Service Systems Engineering 14

1.6 Skill Sets for Service Systems Professionals 18

1.6.1 Service Mindset 19

1.6.2 Service Disciplines 20

1.7 Roles of Technologists versus Managers/Leaders 23

1.8 Preparation of Service Systems Engineers/Leaders 25

1.8.1 Customer Focus 25

1.8.2 Three-Decker Leadership-Building Architecture 26

1.9 Challenges in the New Millennium 27

1.10 Conclusions 27

1.11 References 28

1.12 Appendices 29

1.12.1 Definitions of General Service Terms 29

1.12.2 Projected Growth and Decline of Occupations in the United States(2008-2018) 30

1.12.3 Are You Management Material? 30

1.12.4 Ten Factors for Survival and Success in Corporate America 30

1.12.5 Most Common Reasons for Career Failures 32

1.12.6 How to Manage One's Superiors 35

1.13 Questions 37

Part I The Functions of Engineering Management 39

Chapter 2 Planning 41

2.1 Introduction 41

2.2 New Business Technology Trends 41

2.3 Types of Planning 43

2.3.1 Strategic Planning 43

2.3.2 Operational Planning 44

2.4 Strategic Planning 44

vii

viii Contents

2.4.1 The Inexact Nature of Strategic Planning 45

2.4.2 Major Challenges in Strategic Planning 46

2.4.3 Methods Used to Plan Strategically 47

2.4.4 Technique to Gain Strategic Insights 49

2.4.5 Techniques to Improve Strategic Planning 50

2.4.6 Integration of Strategic Planning with Implementation 51

2.5 Participants in the Planning Process 52

2.5.1 Decision Makers 52

2.5.2 Workers with Knowledge 52

2.6 Planning Roles of Engineering Managers 53

2.6.1 Assist Their Own Superiors in Planning 53

2.6.2 Ask for Support from Subordinates 53

2.6.3 Develop Action Plans 53

2.7 Tools for Planning 55

2.7.1 Market Research 55

2.7.2 SWOT Analysis 55

2.7.3 Financial What-If Analysis and Modeling 55

2.7.4 Scenario Planning 56

2.7.5 Performance Benchmarks 59

2.7.6 Product Life-Cycle Analysis 60

2.8 Planning Activities 60

2.8.1 Forecasting 60

2.8.2 Action Planning 64

2.8.3 Issuing Policies 65

2.8.4 Establishing Procedures 66

2.9 Some Specific Advice on Planning 67

2.9.1 Assumptions 67

2.9.2 People 67

2.9.3 Benefit versus Cost 67

2.9.4 Small but Sure Steps 68

2.9.5 Contingency Planning 68

2.9.6 Commitment 68

2.10 Planning in the Healthcare Industry 71

2.11 Conclusions 72

2.12 References 73

2.13 Questions 75

Chapter 3 Organizing 77

3.1 Introduction 77

3.2 The Concept of Structure Following Strategy 78

3.2.1 Cost Leadership 78

3.2.2 Cheap Convenience 78

3.2.3 Dedicated Service 78

Contents ix

3.2.4 Premium Service 79

3.3 Activities of Organizing 80

3.4 Organizing One's Own Workplace for Productivity 80

3.5 Developing Organizational Structure 83

3.5.1 Functional Organization 83

3.5.2 Discipline-Based Organization 84

3.5.3 Product/Service/Region-Based Organization 84

3.5.4 Matrix Organization 86

3.5.5 Team Organization 88

3.5.6 Network Organization (Weblike Organization) 88

3.6 Enhancing Corporate Performance by Organizing—Examples 92

3.6.1 Organizing for Profitability—The Service Profit-Chain Model 92

3.6.2 Organizing for High Performance by Using a Flexible Structure 94

3.6.3 Organizing for Promoting Interactions of Self-Directed Professionals 95

3.6.4 Organizing for Innovation 97

3.6.5 Organizing for Performance at the Design-Manufacturing Interface 98

3.6.6 Organizing for Heightened Employee Motivation 98

3.6.7 Organizing for High-Tech Marketing 100

3.6.8 Organizing for Balancing the Short- and Long-Term Corporate Needs 101

3.7 Cross-Functional Teams 103

3.7.1 Team Discipline 104

3.7.2 Team Learning 104

3.7.3 Guidelines for Building Collaborative Teams 106

3.8 Delegating 107

3.9 Establishing Working Relationships 109

3.9.1 Role Clarification 110

3.9.2 Conflict Resolution 111

3.10 Informal Organizations 112

3.11 Conclusions 113

3.12 References 114

3.13 Appendix—Definitions 115

3.14 Questions 116

Chapter 4 Leading 119

4.1 Introduction 119

4.2 Leading Activities 119

4.3 Deciding 120

4.3.1 Decision Makers 122

4.3.2 Decision-Making Styles 123

4.3.3 Framework for Decision Making 123

4.3.4 Rational Decision-Making Processes 124

4.3.5 Kepner-Tregoe Decision Analysis Tool 126

4.3.6 Additional Support Tools for Decision Making 130

x Contents

4.4

4.3.74.3.8

4.3.9

Decision Making by Gut Instinct 132Decision Making in Teams 133

Hidden Traps in Decision Making 133

Communicating 135

4.4.1

4.4.2

4.4.3

4.4.4

4.4.5

Asking 135

Telling 135

Listening 136

Writing 136

Understanding 136

Motivating 139

4.5.1

4.5.2

4.5.3

Methods of Motivating 140

Specific Techniques to Enhance Motivation

McGregor's Theory of Worker Motivation

Selecting Engineering Employees 142

4.6.1

4.6.2

4.6.3

Selection Process 142

Soft Skills 144

Character 145

Developing People 147

4.7.1

4.7.2

Employees 147

Successors 148

140

141

4.5

4.6

4.7

4.8 Special Topics on Leading 148

4.8.1 Trust 148

4.8.2 Leading Changes 150

4.8.3 Advice for Newly Promoted Leaders 152

4.9 Conclusions 152

4.10 References 153

4.11 Appendices 154

4.11.1 Factors Affecting One's Influence on People 154

4.11.2 Motivation of Mission-Critical People 155

4.12 Questions 156

Chapter 5 Controlling 161


5.2 Setting Performance Standards 161

5.3 Benchmarking 163

5.3.1 Sample Benchmarking Metrics 165

5.3.2 Limitations of Benchmarking 165

5.4 Talent Management 167

5.4.1 Preserving Talents 167

5.4.2 Measuring Performance 167

5.4.3 Evaluating Performance 168

5.4.4 Correcting Performance 169

5.5 Means of Control 169

Contents xi

5.6 General Comments 170

5.7 Control of Management Time 170

5.8 Control of Personnel 172

5.9 Control of Business Relationships 174

5.10 Control of Projects 174

5.11 Control of Quality 175

5.11.1 Early Programs on Quality 175

5.11.2 FMEA 177

5.11.3 Six Sigma 179

5.12 Control of Knowledge 184


5.14 References 186

5.15 Questions 187

Part II Business Fundamental for Service Systems Engineersand Leaders 191

Chapter 6 Cost Accounting and Control 193


6.2 Service/Product Costing 193

6.2.1 Traditional Method of Allocating Indirect Costs 194

6.2.2 Activity-Based Costing (ABC) 194

6.2.3 Survey of ABC Uses in Companies 196

6.2.4 Sequential Steps to the Implementation of ABC 196

6.2.5 Practical Tips for Performing ABC 198

6.3 Application of ABC in Various Service Sectors 198

6.3.1 ABC in Banking and Financial Services 199

6.3.2 ABC in Healthcare 200

6.3.3 ABC in Governments 201

6.3.4 ABC in IT and Library Services 202

6.3.5 ABC in Software Development 204

6.3.6 Time-Driven ABC 204

6.4 Application of ABC in the Manufacturing Sector 207

6.4.1 Specific Example of Applying ABC to XYZ Manufacturing Company 209

6.5 Target Costing 211

6.6 Risk Analysis and Cost Estimation under Uncertainty 211

6.6.1 Representation of Risks 212

6.6.2 Project Cost Estimation by Simulation 213

6.6.3 Examples of Input Distribution Functions 215

6.6.4 Application—Cost Estimation of a Risky Capital Project 216

6.6.5 Other Techniques to Account for Risks 219

6.7 Management of Overhead Costs 223

6.8 Miscellaneous Topics 223

xii Contents

6.8.1 Economic Quantity of Ordering' 224

6.8.2 Simple Cost-Based Decision Models 224

6.8.3 Project Evaluation Criteria 229

6.9 Conclusions 231

6.10 References 232

6.11 Appendices 234

6.11.1 Basic Terms in Cost Accounting 234

6.11.2 Cost Analysis 235

6.11.3 Time Value of Money and Compound Interest Equations 236

6.11.4 Depreciation Accounting 241

6.11.5 Inventory Accounting 243

6.11.6 Derivation of Single Payment Compound Amount Factor 244

6.11.7 Derivation of Uniform Series Compound Amount Factor 245

6.11.8 Derivation of Annual Cost Computation Equations 246

6.11.9 Net Present Value Including Corporate Tax, Depreciation, andInvestment 247

6.11.10 Conversion of a Probability Density Function to Its Cumulative DistributionFunction 248

6.12 Questions 249

Chapter 7 Financial Accounting and Management for Service SystemsEngineers 256


7.2 Financial Accounting Principles 257

7.2.1 Accrual Principle 257

7.2.2 Matching 258

7.2.3 Dual Aspects 258

7.2.4 Full Disclosure Principle 258

7.2.5 Conservatism 258

7.2.6 Going Concern 258

7.3 Key Financial Statements 258

7.3.1 Income Statement 259

7.3.2 Balance Sheet 262

7.3.3 Funds Flow Statement 264

7.3.4 Linkage between Statements 267

7.3.5 Recognition of Key Accounting Entries 267

7.3.6 Caution in Reading Financial Statements 269

7.4 Fundamentals of Financial Analysis 272

7.4.1 Performance Ratios 273

7.4.2 Ratio Analysis 275

7.4.3 Economic Value Added 279

7.4.4 Creation of Shareholder Value 280

7.5 Balanced Scorecard 282

Contents xiii

7.6 Capital Formation 283

7.6.1 Equity Financing 283

7.6.2 Debt Financing 285

7.6.3 Weighted Averaged Cost of Capital (WACC) 288

7.6.4 Effect of Financial Leverage 289

7.6.5 Optimum Leverage 290

7.7 Capital Assets Valuation 294

7.7.1 Operations—Assets in Place 294

7.7.2 Opportunities—Real Options 299

7.7.3 Acquisition and Joint Ventures 302

7.8 Conclusions 308

7.9 References 309

7.10 Appendices 311

7.10.1 T-Accounts 311

7.10.2 Risks 314

7.10.3 Derivation of an Infinite Series 316

7.10.4 Derivation of the Dividend Growth Model 317

7.10.5 Derivation of Present Value of Growth Opportunity (PVGO) 317

7.11 Questions 317

Chapter 8 Marketing Management for Service Systems Engineers 332


8.2 The Function of Marketing 333

8.2.1 Sales versus Marketing 333

8.2.2 The Marketing Process 334

8.2.3 Products and Services Marketing 336

8.2.4 Key Elements in Marketing 337

8.3 Market Forecast—Four-Step Process 340

8.3.1 Define the Market 340

8.3.2 Segment the Market 341

8.3.3 Determine the Segment Drivers and Model its Changes 341

8.3.4 Conduct a Sensitivity Analysis 341

8.4 Market Segmentation 342

8.4.1 Purpose of Market Segmentation 342

8.4.2 Steps in Marketing Segmentation 342

8.4.3 Criteria for Market Segmentation 343

8.4.4 Pitfalls of Market Segmentation 343

8.4.5 Rediscovery of Market Segmentation 344

8.5 Marketing Mix (Seven Ps) 346

8.5.1 Product (Service) Strategy 346

8.5.2 Pricing Strategy 358

8.5.3 Marketing Communications (Promotion) 366

8.5.4 Placement (Distribution) Strategy 372

xiv Contents

8.5.5 Physical Evidence 375

8.5.6 Process Design 375

8.5.7 People 375

8.6 Customers 376


8.6.2 Customer Acquisition in Business Markets 377

8.6.3 Moments of Truth in Customer Service 378

8.6.4 Customer Interactions and Loyalty 378

8.6.5 Customer Feedback—The Ultimate Question 380

8.7 Other Factors Affecting Marketing Success 382

8.7.1 Alliances and Partnerships 383

8.7.2 Organizational Effectiveness 383

8.8 Conclusions 384

8.9 References 385

8.10 Appendices 387

8.10.1 Consumer Survey and Market Research 387

8.11 Questions 388

Part III SSME Leadership in the New Millennium 391

Chapter 9 Service Systems Management and Engineering Leaders 395


9.2 New Competency Model for Service Leaders 396

9.2.1 Innovations 396

9.2.2 Attention to Operations 397

9.2.3 Networking 397

9.2.4 Communications 397

9.2.5 Know Your Followers 398

9.3 Total Leadership 401

9.4 Leading Change 402

9.5 Leadership Styles, Qualities, and Attributes 403

9.5.1 Leadership Styles 403

9.5.2 Self-Awareness—A Part of Emotional Intelligence 406

9.5.3 Inspirational Leadership Qualities 407

9.5.4 Leadership Attributes 408

9.5.5 Self-Motivation 413

9.6 Leaders and Managers 413

9.7 Factors Affecting the Promotion to Manager 415

9.7.1 Competence in Current Technical Assignments 415

9.7.2 Readiness and Desire to Be Manager 415

9.7.3 Good Match with Organizational Needs 416

9.8 Leadership Skills for the Twenty-First Century 419

9.9 Unique Contributions Expected of SSME Leaders 423

Contents xv

9.9.1 Technologists as Gatekeepers 424

9.9.2 Technological Intuition 424

9.9.3 Technological Innovations—Lead in Strategic Differentiation 425

9.9.4 Specific Contributions—Lead in Operational Excellence 427

9.10 Career Strategies for the Twenty-First Century 428

9.11 "Take Charge" to "Get Success" Formulae 428


9.13 References 430

9.14 Appendices 432

9.14.1 Tips on Coping for First-Time Supervisors and Managers 432

9.14.2 The Wisdom of the Mountain 434

9.14.3 The Sound of the Forest 434

9.14.4 The Wheel and the Light 435

9.15 Questions 436

Chapter 10 Ethics in Service Systems Management and Engineering 439


10.2 Ethics in the Workplace 442

10.2.1 Universal Moral Standards 443

10.2.2 Ethical Minds 443

10.2.3 Engineering Ethics 444

10.2.4 Management Ethics 447

10.2.5 Ethics in Business 448

10.3 Guidelines for Making Tough Ethical Decisions 451

10.3.1 Questions for Individuals Facing Defining Moments 451

10.3.2 Questions between Right and Wrong That Managers of Working Groups MustAnswer 451

10.3.3 Questions That Confront Company Executives 452

10.4 Corporate Ethics Programs 454

10.5 Affirmative Action and Workforce Diversity 457

10.6 Global Issues of Ethics 459

10.7 Philosophical Approach of Addressing Ethics Issues 468


10.9 References 469

10.10 Questions 471

Chapter 11 Knowledge Management 475


11.2 Basics of Knowledge Management (KM) 475

11.2.1 Data, Information, Knowledge, and Wisdom 475

11.2.2 Tacit and Explicit Knowledge 476

11.2.3 Preserving and Disseminating Explicit Knowledge 476

xvi Contents

11.2.4 Creating and Sharing Tacit Knowledge 477

11.2.5 Enhancement of Explicit Knowledge by Tacit Knowledge 479

11.2.6 Communities of Practice (CoPs) 480

11.2.7 Key Requirements of Knowledge Management 483

11.3 Management of KM Programs 486

11.3.1 Planning for Knowledge Management 486

11.3.2 Comprehensive Approach to Knowledge Management 486

11.3.3 Critical Success Factors 487

11.3.4 Knowledge Management Obstacles 488

11.3.5 Known Mistakes in Knowledge Management 488

11.4 Knowledge Management Practices in Service and Manufacturing Sectors 489

11.4.1 McKinsey & Company 489

11.4.2 Accenture 490

11.4.3 Ernst & Young 491

11.4.4 Booz Allen Hamilton 492

11.4.5 Arthur D. Little 493

11.4.6 Katzenbach Partners 494

11.4.7 IBM 494

11.4.8 British Petroleum (BP) 496

11.4.9 Chrysler Group 496

11.4.10 Hill & Knowlton 497

11.4.11 Xerox 498

11.4.12 Healthcare Partners—Massachusetts 498

11.5 New Frontiers of Knowledge Management 499


11.7 References 501

11.8 Questions 503

Chapter 12 Innovations in Services 505


12.2 Creativity and Creative Thinking Strategies 505

12.2.1 The Creative Process 506

12.2.2 Thinking Strategies 511

12.3 Fundamentals of Innovation 519

12.3.1 The Innovation Value Chain 519

12.3.2 Innovation Processes 521

12.3.3 Open and Closed Innovations 525

12.3.4 Categories of Innovation in Practice 527

12.4 Innovation Management 528

12.4.1 Organizational Settings Conducive to Innovations 528

12.4.2 Business Dimensions to Focus 530

12.4.3 Best Practices in Managing Creative People 533

12.4.4 Additional Guidelines for Managing Innovations 535

Contents xvii

12.4.5 Protection of Inventions and Innovations 536

12.4.6 Patents 536

12.5 Selected Innovation Practices in the Service Sectors 538

12.5.1 Innovation in Communications, Financial, and Technical BusinessServices 538

12.5.2 Innovations in the Insurance Industry 539

12.5.3 Innovations in the Food Industry 540

12.5.4 Major Hurdles to Innovations in Healthcare 541

12.5.5 Innovation in Car Sharing Services 542

12.5.6 Innovations in the Airline Industry 542


12.7 References 543

12.8 Appendices 546

12.8.1 Value Factor Analysis 546

12.8.2 SRI International Innovation Plan 548

12.8.3 Self-Assessment Tool in Innovation Management 550

12.9 Questions 552

Chapter 13 Operational Excellence—Lean Six Sigma, Web-Based Applications,and SOA 554


13.2 The New Revolution in Productivity 555

13.3 Lean Six Sigma for Services—The SERVICE Model 558

13.4 Internet-based Applications for Service Management 561

13.4.1 Customer Relationship Management 561

13.4.2 Enterprise Integration and Resource Planning 565

13.4.3 Supply Chain Management 569

13.4.4 Project Management 573

13.4.5 Corporate Innovation 582

13.5 Web Services 585

13.6 Service-oriented Architecture (SOA) 586

13.6.1 Definition 587

13.6.2 Implementation of SOA 589

13.6.3 Benefits of SOA 590

13.6.4 Potential Causes for SOA Failures 590

13.6.5 Critical Success Factors 591

13.6.6 SOA Applications Cases 591

13.6.7 The Future of SOA and the IT Utilities 593


13.8 References 595

13.9 Questions 597

xviii Contents

Chapter 14 Globalization 599


14.2 Global Trade and Commerce 600

14.2.1 United Nations Statistics and Goals 600

14.2.2 Multinational Enterprises 601

14.2.3 Ownership of Global Companies 602

14.2.4 Globalization Drivers 605

14.2.5 Impact of Catastrophic Events on Globalization 606

14.3 The Great Philosophical Debate about Globalization 610

14.4 New Opportunities Offered by Globalization 613

14.4.1 Adapting to Local Market Differences 614

14.4.2 Economies of Global Scale 615

14.4.3 Economies of Global Scope 616

14.4.4 Location-Based Optimization 616

14.4.5 Knowledge Transfer across Locations 617

14.5 Preparation for Globalization 618

14.5.1 Personal Preparation 618

14.5.2 Success Factors for Globalization 622

14.5.3 Global Virtual Team 624

14.5.4 Management Style 626

14.5.5 Strategic Pathways to Globalization 628

14.5.6 Avoidance of Globalization Mistakes 628

14.6 Past Practices Related to Globalization 630

14.6.1 The Defender 631

14.6.2 The Explorer 631

14.6.3 The Controller 631

14.6.4 The Integrator 632

14.7 Developing Global Strategies for Service Businesses 633

14.8 Future Trends 634


14.8.2 Enterprise Resource Planning and Application Integration 636

14.8.3 Supply Strategy 637

14.8.4 Knowledge Management 639

14.8.5 Changes in Organizational Settings 639

14.8.6 Population Diversity 640

14.8.7 Global Business Trends 640

14.9 The Global Challenges Ahead 641

14.9.1 Job Migration Induced by Globalization 641

14.9.2 Developing Local Talents 647

14.9.3 The Challenges Ahead 648

Contents xix


14.11 Summary Remarks for the Text 651

14.12 References 655

14.13 Questions 658

Appendix: Selected Cases Relevant to Service Systems Management andEngineering 661

Index 667

service systems management and engineering · 2010. 7. 7. · 1.9 challenges in the new millennium...

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