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Chapter – 4
New Service Development
4
Service Management (5e)
Operations, Strategy, Information Technology
By
Fitzsimmons and Fitzsimmons
4-2
Discuss the new service development process. Prepare a blueprint for a service operation. Describe a service process using the dimensions of
divergence and complexity. Use the taxonomy of service processes to classify a
service operation. Compare and contrast the generic approaches to
service system design.
Learning ObjectivesLearning Objectives
4-3
Levels of Service InnovationLevels of Service Innovation
Radical InnovationsMajor Innovation:
new service driven by information and computer based technology
Wells Fargo Internet banking launched in May 1995
Start-up Business: new service for existing market
New Services for the Market Presently Served: new services to customers of an organization
Bank branches in Supermarkets
Incremental InnovationsIncremental Innovations
Service Line Extensions: augmentation of existing service line, such as adding new menu
items, new routes
Exclusive lounge at Airports for first class passengers for some airlines
Service Improvements: changes in features of currently offered service
Delta Airlines use of ATM-like kiosks to distribute boarding passes to passengers
Style Changes: modest visible changes in appearances
Some funeral homes now arrange for celebration of life instead of mourn death
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4-5
Technology Driven Service InnovationTechnology Driven Service Innovation
Power/energy - International flights with jet aircraft
Physical design - Enclosed sports stadiums, Hotel Atrium
Materials - Astroturf
Methods - JIT and TQM
Information - E-commerce using the Internet
Sources of New ServicesSources of New Services
Customer suggestions
Frontline employees
Mining customer database
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4-7
People
Technology Systems
Product
Full Launch Development
Design Analysis
Org
aniz
atio
nal
Con
text Team
s
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
New Service Development CycleNew Service Development Cycle
4-8
Service Design Elements1. Structural
Service Design Elements1. Structural
Delivery system Front and back office Automation Customer participation
Facility design Size Aesthetics Layout
Location Customer demographics Single versus multiple sites Competition Site characteristics
Capacity planning Managing queues Number of servers Accomodating average or peak demand
Service Design Elements2. Managerial
Service Design Elements2. Managerial
Service encounter Service culture Motivation Selection and training Employee empowerment
Quality Measurement Monitoring method Expectations versus perceptions Service guarantee
Managing capacity and demand Strategies for altering demand and controlling supply Queue management
Information Competitive resources Data collection
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Service Blueprint of Luxury HotelService Blueprint of Luxury Hotel
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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.
Figure 4.3 (pp 85) Allows us to see the market positioning of a service based on
degree of complexity and degree of divergence allowed
Strategic Positioning Through Process Structure
Strategic Positioning Through Process Structure
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LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE
No ReservationsSelf-seating. Menu on Blackboard
EliminateCustomer Fills Out Form
Pre-prepared: No Choice
Limit to Four Choices
Sundae Bar: Self-service
Coffee, Tea, Milk onlyServe Salad & Entree Together:
Bill and Beverage Together
Cash only: Pay when Leaving
TAKE RESERVATIONSEAT GUESTS, GIVE MENUSSERVE WATER AND BREAD
TAKE ORDERSPREPARE ORDERS
Salad (4 choices)
Entree (15 choices)
Dessert (6 choices)
Beverage (6 choices)SERVE ORDERS
COLLECT PAYMENT
Specific Table SelectionRecite Menu: Describe Entrees & SpecialsAssortment of Hot Breads and Hors D’oeuvresAt table. Taken Personally by Maltre d’
Individually Prepared at table
Expand to 20 Choices: Add Flaming Dishes;Bone Fish at Table; Prepare Sauces at TableExpand to 12 Choices
Add Exotic Coffees; Sherbet betweenCourses; Hand Grind Pepper
Choice of Payment. Including House Accounts:Serve Mints
Structural Alternatives for a RestaurantTable 4.3 (pp 85)
Structural Alternatives for a RestaurantTable 4.3 (pp 85)
Taxonomy for Service Process DesignTaxonomy for Service Process Design
Service processes can be classified using the concept of1. Divergence
2. the object toward which service activity is directed
3. Degree of customer contact
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1. Degree of divergence1. Degree of divergence
Low divergence – standardized service with high volume• Tasks are routine• Relatively low level of technical skills required• Production-line approach, example, McDonalds
High divergence – customized services• More technical and analytical skills required• More flexibility required• More capacity required
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2. Object of the Service Process2. Object of the Service Process
Working on goods of the customer, ex. Auto repair Property must be secured from damage or loss
Services where the provider provides facilitating goods ex restaurant Appropriate stock levels and the quality of these facilitating goods
becomes a concern Processing information
Done in back office, ex. check processing at a bank Providing information over phone , ex. Phone banking
Processing People, ex. Haircut or surgical operation High interpersonal skills required as well as technical skills
4-15
3. Type of Customer Contact3. Type of Customer Contact
Decision on level of customer contact will decide the type of training for employees and the design of the facilityIndirect via electronic media – no need for service
provider at the time of service delivery
Indirect via phone – need for service provider at the time of delivery and need for employee interpersonal skills
Customer is physically present for part or full service – need for interpersonal skills and also careful planning of service layout
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Low divergence (standardized service)
High divergence (customized service)
Processing of
goods Processing Information
Processing of people
Processing of goods
Processing Information
Processing of people
Dry Cleaning Check processing
Auto repair Computer programming
No Customer Contact
Restocking a vending machine
Billing for a credit card
Tailoring a suit Designing a building
Indirect Customer Contact
Ordering groceries from a home computer
Supervision of a landing by an air controller
No customer service worker interaction(self- service)
Operating a vending machine
Withdrawing cash from an ATM
Operating an elevator
Sampling food at a buffet dinner
Documenting medical history
Driving a rental car
Assembling premade furniture
Giving a lecture Riding an escalator
Bagging of groceries
Searching for information in a library
Using a health club facility
Customer service worker interaction
Food service in a restaurant
Handling routine bank transactions
Providing public transportation
Home carpet cleaning
Portrait painting
Haircutting
Direct Customer Contact
Hand car washing
Providing mass vaccination
Landscaping service
Counseling Performing a surgical operation
Taxonomy of Service ProcessesTable 4.4 (pp. 86)
Taxonomy of Service ProcessesTable 4.4 (pp. 86)
4-18
1. Production-line
2. Customer as Coproducer
3. Customer Contact
4. Information Empowerment
Generic Approaches to Service DesignGeneric Approaches to Service Design
1. Production-Line Approach1. Production-Line Approach
Characteristics Routine and simple services High standardization Low customer contact
Limited discretionary action of personnel – to get consistency in service performance
Division of Labor – total job is broken into groups of simple tasks
Substitution of technology for people – example ATM machines
Service standardization – limited service options creates opportunities for predictability and preplanning
4-19
2. Customer as Co-Producer2. Customer as Co-Producer
Characteristics For most services, the customer is present when the service is being performed We can use the customer as a productive worker – through proper design of the
service Either compensate the customer for their service or design in such a way that
he/she does not feel as a co-producer
Self Service – E-tickets over the Internet provide convenience Smoothing Service Demand – will allow better use of capacity,
which is time-perishable To implement demand-smoothing strategy, customers must
participate, adjusting the time of their demand to match availability of the service. Appointments, reservations, price incentives
4-20
3. Customer-Contact Approach3. Customer-Contact Approach
Manufacturing is a controlled environment focused on maximizing productivity
and capacity utilization; inventory to decouple production from customer demand
Services When low contact – then run them as manufacturing in back-
office, achieving high capacity utilization and economies of scale
When high-contact – the quality is determined by customers’ experience – both the process and the outcome are important
Separate different components of service into high and low contact areas to bring efficiency
Considerations that will impact high and low contact are given in table 4.5 (pp 93)
4-21
4. Information Empowerment4. Information Empowerment
Employee empowerment – faster and accurate Record keeping customer names Supplier relationship Communication with other firms All aspects of an operation can be integrated (ERP systems)
Customer empowerment Customers can use Internet to educate themselves
4-22
Customer ValueCustomer Value
Results produced for the customer It must satisfy the need for which it was purchased
Process quality Since customer is a part of the process of service delivery,
therefore improvement in service quality will be appreciated by the customer
Price to the customer Greater consistency in service quality should lower cost – because
that allows greater alignment between customer perceptions and expectations; resulting in lower price being offered to customer
Cost of acquiring the service Total cost of acquiring the service is important to customers
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4-24
Customer Value EquationCustomer Value Equation
erviceuiringtheSCostsofAcqice
tyocessQualioducedsultsValue
Pr
PrPrRe
4-25
Discussion QuestionsDiscussion Questions
What are the limits in the production-line approach to service?
Give an example of a service in which isolation of the technical core would be inappropriate.
What are some drawbacks of customer participation in the service delivery process?
What ethical issues are raised in the promotion of sales during a service transaction?