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Tips of StudyingTips of Studying
• Know the key terms and definitions Know the key terms and definitions at the end of each chapter.at the end of each chapter.
• Pay attention to examples, figures Pay attention to examples, figures and tables.and tables.
• Study the three team assignments Study the three team assignments and presentations.and presentations.
• Go over the mid-term.Go over the mid-term.• Practice using a calculator for Practice using a calculator for
control chart formulas. control chart formulas. • Study with others.Study with others.
Chapter 1Chapter 1
What is the role of services in What is the role of services in an economy?an economy?
Service DefinitionService Definition
A service is a A service is a time-time-perishableperishable, , intangibleintangible experience performed for a experience performed for a customer acting in the role of customer acting in the role of a a co-producer.co-producer.
Trends in U.S. Employment Trends in U.S. Employment by Sectorby Sector
0
10
20
30
40
50
60
70
80
90
Year
Pro
port
atio
n o
f to
tal e
mplo
yem
ent
Service
Manufacturing
Agriculture
Stages of Economic Stages of Economic DevelopmentDevelopment
Pre- Use of StandardPre- Use of Standard dominant human Unit of of living dominant human Unit of of living Society Game activity labor social life measure Structure TechnologySociety Game activity labor social life measure Structure Technology
Pre- Against Agriculture Raw Extended Sub- Routine Simple Pre- Against Agriculture Raw Extended Sub- Routine Simple handhand
Industrial Nature Mining muscle household sistence Traditional toolsIndustrial Nature Mining muscle household sistence Traditional tools power Authoritative power Authoritative
Industrial Against Goods Machine Individual Quantity Bureaucratic Machines Industrial Against Goods Machine Individual Quantity Bureaucratic Machines fabricated production tending of goods Hierarchical fabricated production tending of goods Hierarchical naturenature Post- Among Services Artistic Community Quality of Inter- InformationPost- Among Services Artistic Community Quality of Inter- Information industrial Persons Creative life in terms dependentindustrial Persons Creative life in terms dependent Intellectual of health, GlobalIntellectual of health, Global education,education, recreation recreation
The New Experience The New Experience EconomyEconomy
Economy Agrarian Industrial Service Experience
Function Extract Make Deliver Stage
Nature Fungible Tangible Intangible Memorable
Attribute Natural Standardized Customized Personal
Method of
supply
Stored in
bulk
Inventoried Delivered
on demand
Revealed
over time
Seller
Trader
Manufacturer
Provider
Stager
Buyer
Market
User
Client
Guest
The Four Realms of an The Four Realms of an ExperienceExperience
Customer Participation
Passive Active
Environmental
Absorption Entertainment (Movie)
Education (Language)
Relationship Immersion Esthetic (Tourist)
Escapist (ScubaDiving)
Experience Design Experience Design PrinciplesPrinciples
• Theme the Experience Theme the Experience Forum shopsForum shops
• Harmonize Impressions with Positive Harmonize Impressions with Positive CuesCues
O’Hare airport parking O’Hare airport parking
garagegarage
• Eliminate Negative CuesEliminate Negative Cues cinemark talking trash cinemark talking trash
containerscontainers
• Mix in Memorabilia Mix in Memorabilia Hard Rock T-shirtsHard Rock T-shirts
• Engage all Five Senses Engage all Five Senses Mist in RainforestMist in Rainforest
Source of Service Sector Source of Service Sector GrowthGrowth
• InnovationInnovationPush theory Push theory New discovery, Post-itNew discovery, Post-it
Pull theory Pull theory changing demographic, interest changing demographic, interest ratesrates
Services derived from products Services derived from products Video RentalVideo Rental
Information driven services Information driven services statement of statement of transaction for tax preptransaction for tax prep
Difficulty of testing service prototypes Difficulty of testing service prototypes focus groupfocus group
• Social TrendsSocial Trends Aging of the populationAging of the populationTwo-income familiesTwo-income familiesGrowth in number of single peopleGrowth in number of single peopleHome as sanctuaryHome as sanctuary
Service/Product BundleService/Product Bundle
ElementElement Core Core GoodsGoods
ExampleExampleCore Core ServiceService
ExampleExample
BusinessBusiness Custom Custom clothierclothier
Business hotelBusiness hotel
CoreCore Business suitsBusiness suits Room for the Room for the nightnight
PeripheralPeripheral
GoodsGoodsGarment bagGarment bag Bath robeBath robe
PeripheralPeripheral
ServiceServiceDeferred Deferred payment planspayment plans
In house In house restaurantrestaurant
VariantVariant Coffee loungeCoffee lounge Airport shuttleAirport shuttle
The Service Package
1. Supporting FacilityExamples are golf course, ski lift, hospital, airplane.
2. Facilitating GoodsExamples are food items, legal documents, golf clubs, medical history.
3. InformationExamples are patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi.
4. Explicit ServicesExamples are quality of meal, attitude of the waiter, on-time departure.
5. Implicit ServicesExamples are privacy of loan office, security of a well lighted parking lot.
Distinctive Characteristics of Services
• Customer Participation • Simultaneity• Perishability• Intangibility• Heterogeneity
The Service Process Matrix
Degree of Interaction and CustomizationLow High
Service factory: Service shop: * Airlines * Hospitals Low * Trucking * Auto repair * Hotels * Other repair services * Resorts/ recreation
Degree
of labor Intensity Mass service: Professional service:
* Retailing * Doctors High * Wholesaling * Lawyers * Schools * Accountants * Retail aspects of * Architects commercial banking
Strategic Service Classification (Nature of
the Service Act)
Strategic Service Classification (Nature of
the Service Act) Direct Recipient of the ServiceNature of the Service Act People Things People’s bodies: Physical possessions: Health care Freight transportation Passenger transportation Repair and maintenance
Tangible actions Beauty salons Veterinary care Exercise clinics Janitorial services Restaurants Laundry and dry cleaning
People’s minds: Intangible assets: Education Banking
Intangible actions Broadcasting Legal services Information services Accounting Theaters Securities Museums Insurance
Strategic Service Classification
(Relationship with Customers)
Strategic Service Classification
(Relationship with Customers) Type of Relationship between Service Organization and Its
CustomersNature of Service Delivery “Membership” relationship No formal relationship
Insurance Radio station Telephone subscription Police protection
Continuous delivery Electric Utility Lighthouse
of service Banking Public Highway
Long-distance phone calls Restaurant Theater series tickets Pay phone
Discrete transactions Transit pass Toll highway Sam’s Wholesale Club Movie theater Airline frequent flyer Public transportation
Strategic Service Classification (Nature of
Demand and Supply)
Strategic Service Classification (Nature of
Demand and Supply) Extent of Demand Fluctuation
over TimeExtent to which Supply Is Constrained Wide
Narrow
Electricity Insurance
Peak demand can Telephone Legal services
usually be met Police emergency Banking
without a major delay Hospital maternity unit Laundry and dry cleaning
Tax preparation Fast food restaurant
Peak demand regularly Passenger transportation Movie theater
exceeds capacity Hotels and motels Gas station
Strategic Service Classification (Method of
Service Delivery)
Strategic Service Classification (Method of
Service Delivery) Availability of Service OutletsNature of Interaction between Customer and Service Organization Single site Multiple site
Customer travels to Theater Bus service
service organization Barbershop Fast-food chain
Service provider Taxi Mail delivery
travels to customer Pest control service AAA emergency repairs
Transaction is at Credit card company Broadcast network
arm’s length Local TV station Telephone company
Open Systems View of Services
Service Process Consumer Evaluation
Consumer arrivals Consumer participant departures Criteria (input) Consumer-Provider ( output) Measurement interface Control Monitor
Customer demand Service Operations Manager Service personnel
Production function: Perceived needs Alter Monitor and control process Schedule Empowerment Location demand Marketing function: supply Training Interact with consumers Attitudes Control demand Modify as necessary Define standard Service package Supporting facility Communicate Facilitating goods Basis of by advertising Explicit services selection Implicit services
Strategic Service Vision Strategic Service Vision ElementsElements
1.1. Target Market SegmentTarget Market Segment What What are common characteristics of important market are common characteristics of important market segments?segments?
2.2. Service ConceptService Concept How do customers How do customers perceive the service concept?perceive the service concept?
3.3. Operating StrategyOperating Strategy What are What are important elements of the strategy: operations, important elements of the strategy: operations, financing, marketing, organization, human financing, marketing, organization, human resources, control?resources, control?
4.4. Service Delivery SystemService Delivery System What What are important features of the service delivery are important features of the service delivery system including: role of people, technology, system including: role of people, technology, equipment, layout, procedures?equipment, layout, procedures?
Competitive Environment of Competitive Environment of ServicesServices
Competitive Environment of Competitive Environment of ServicesServices
• Relatively Low Overall Entry BarriersRelatively Low Overall Entry Barriers• Economies of Scale LimitedEconomies of Scale Limited• High Transportation CostsHigh Transportation Costs• Erratic Sales FluctuationsErratic Sales Fluctuations• No Power Dealing with Buyers or No Power Dealing with Buyers or
SuppliersSuppliers• Product Substitutions for ServiceProduct Substitutions for Service• High Customer LoyaltyHigh Customer Loyalty• Exit Barriers Exit Barriers
Competitive Service Competitive Service StrategiesStrategies
1.1. Overall Cost LeadershipOverall Cost Leadership
2.2. DifferentiationDifferentiation
3.3. FocusFocus
Overall Cost LeadershipOverall Cost LeadershipOverall Cost LeadershipOverall Cost Leadership
• Seeking Out Low-cost CustomersSeeking Out Low-cost Customers• Standardizing a Custom Service Standardizing a Custom Service • Reducing the Personal Element in Reducing the Personal Element in
Service Service Delivery (promote self-Delivery (promote self-service)service)
• Reducing Network Costs (hub and Reducing Network Costs (hub and spoke)spoke)
• Taking Service Operations Off-lineTaking Service Operations Off-line
DifferentiationDifferentiationDifferentiationDifferentiation
• Making the Intangible Tangible Making the Intangible Tangible (memorable)(memorable)
• Customizing the Standard ProductCustomizing the Standard Product• Reducing Perceived RiskReducing Perceived Risk• Giving Attention to Personnel TrainingGiving Attention to Personnel Training• Controlling QualityControlling Quality
Note: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service.
FocusFocusFocusFocus
• Buyer Group: (e.g. USAA insurance Buyer Group: (e.g. USAA insurance and military officers)and military officers)
• Service Offered: (e.g. Shouldice Service Offered: (e.g. Shouldice Hospital and hernia patients)Hospital and hernia patients)
• Geographic Region: (e.g. Austin Geographic Region: (e.g. Austin Cable Vision and TV watchers)Cable Vision and TV watchers)
Customer Criteria for Customer Criteria for SelectingSelecting
a Service Provider a Service Provider
Customer Criteria for Customer Criteria for SelectingSelecting
a Service Provider a Service Provider1. Availability2. Convenience3. Dependability4. Personalization
5. Price
6. Quality
7. Reputation8. Safety9. Speed
Service Purchase Service Purchase DecisionDecision
Service Purchase Service Purchase DecisionDecision
• Service Qualifier:Service Qualifier: Just to be Just to be considered.considered.
• Service Winner:Service Winner: U Used to make sed to make the final choice.the final choice.
• Service Loser:Service Loser: Failure to Failure to deliver. deliver.
Competitive Role of Competitive Role of Information in ServicesInformation in Services
Strategic Focus Competitive Use of Information Strategic Focus Competitive Use of Information On-line Off-lineOn-line Off-line (Real time) (Analysis)(Real time) (Analysis) Creation of barriers to entry: Data base asset:Creation of barriers to entry: Data base asset: External Reservation system Selling informationExternal Reservation system Selling information (Customer) Frequent user club Development of (Customer) Frequent user club Development of
servicesservices Switching costs Micro-marketingSwitching costs Micro-marketing Revenue generation: Productivity Revenue generation: Productivity
enhancement:enhancement: Internal Yield management Inventory statusInternal Yield management Inventory status (Operations) Point of sale Data envelopment(Operations) Point of sale Data envelopment Expert systems analysis (DEA) Expert systems analysis (DEA)
Limits in the Use of Limits in the Use of InformationInformation
• Anti-competitive (Barrier to entry)Anti-competitive (Barrier to entry)
• Fairness (Yield management)Fairness (Yield management)
• Invasion of Privacy (Micro-marketing)Invasion of Privacy (Micro-marketing)
• Data Security (Medical records)Data Security (Medical records)
• Reliability (Credit report)Reliability (Credit report)
Using Information to Using Information to Categorize CustomersCategorize Customers
• Coding Coding (how to handle)(how to handle)• Routing Routing (call centers)(call centers)• Targeting Targeting (hidden (hidden
discounts)discounts) • Sharing Sharing (source of revenue)(source of revenue)
Levels of Service Levels of Service InnovationInnovation
I. Radical InnovationsI. Radical Innovations• Major Innovation Major Innovation internet internet
bankingbanking
• Start-up Business Start-up Business new service in existing new service in existing
serviceservice • New Services for the Market Presently New Services for the Market Presently
Served Served kiosks in supermarketskiosks in supermarkets
II. Incremental InnovationsII. Incremental Innovations• Service Line Extensions Service Line Extensions new menu new menu
itemsitems
• Service Improvements Service Improvements self airline self airline check-incheck-in
• Style Changes Style Changes funeral homes celebrate lifefuneral homes celebrate life
Technology Driven Technology Driven Service InnovationService Innovation
• Power/energyPower/energy• Physical designPhysical design• Materials Materials • Methods Methods • InformationInformation
Service Design Service Design ElementsElements
1.1. StructuralStructural- Delivery system- Delivery system- Facility design- Facility design- Location- Location- Capacity planning- Capacity planning
2.2. ManagerialManagerial- Service encounter- Service encounter- Quality- Quality- Managing capacity and demand- Managing capacity and demand- Information- Information
New Service New Service Development CycleDevelopment Cycle
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
Strategic PositioningStrategic Positioning Through Process Structure Through Process Structure
• Degree of ComplexityDegree of Complexity
Measured by the number of steps in the Measured by the number of steps in the service blueprint. (clinic vs. hospital)service blueprint. (clinic vs. hospital)
• Degree of DivergenceDegree of Divergence
Amount of discretion permitted the Amount of discretion permitted the server to customize the service. server to customize the service. (attorney vs. paralegal) (attorney vs. paralegal)
Generic Approaches to Generic Approaches to Service DesignService Design
1. Production-line 1. Production-line McDonald’sMcDonald’s• • Limit Discretion of PersonnelLimit Discretion of Personnel mufflers mufflers• • Division of LaborDivision of Labor MRI tech MRI tech• • Substitute Technology for PeopleSubstitute Technology for People greeting card reorder greeting card reorder• • Standardize the ServiceStandardize the Service franchising - Starbucks franchising - Starbucks
2. Customer as Coproducer 2. Customer as Coproducer Pizza Hut Pizza Hut buffetbuffet
• Self Service• Self Service automatic check-in at airlines automatic check-in at airlines• Smoothing Service Demand• Smoothing Service Demand midweek ski lift midweek ski lift
discountdiscount
3. Customer Contact 3. Customer Contact front office/back officefront office/back office• Degree of Customer Contact • Degree of Customer Contact laundry at a hospital laundry at a hospital• Separation of High and Low Contact Operations• Separation of High and Low Contact Operations
Airline reservationists/baggage handlerAirline reservationists/baggage handler
4. Information Empowerment4. Information Empowerment IT – it’s not just for nerds IT – it’s not just for nerds anymoreanymore
• Employee• Employee cancelled airline flight cancelled airline flight• • Customer Customer package tracking package tracking
Customer Value EquationCustomer Value Equation
erviceuiringtheSCostsofAcqicePr
tyocessQualiProducedPrsultsReValue
Chapter 5Chapter 5
What is the role of What is the role of technology in services?technology in services?
Role of TechnologyRole of Technology
Technology Technology Technology
Technology Technology
Customer Customer
Server
Server
Server
Server
Server
CustomerCustomer
Customer
D. Technology-MediatedService Encounter
E. Technology-GeneratedService Encounter
A. Technology-FreeService Encounter
B. Technology-AssistedService Encounter
C. Technology-FacilitatedService Encounter
Personal Care, Professional services
MRI, Optometrist, Airlines Financial
planner
Tech call center, House arrest monitoring ATM, Web based info, checkout scanning,
airport kiosks
Classification of Service Classification of Service AutomationAutomation
1.1. Fixed-sequence (F) Fixed-sequence (F) automatic tollbooth, automatic tollbooth,
newspaper dispensernewspaper dispenser 2.2. Variable-sequence (V) Variable-sequence (V) ATM, car wash, ATM, car wash,
collating copy machinecollating copy machine
3.3. Playback (P) Playback (P) directory assistance, directory assistance, answering answering
machine, spell checkmachine, spell check
4.4. Numerical controlled (N) Numerical controlled (N) IRS Forms, IRS Forms,
animationanimation
5.5. Intelligent (I) Intelligent (I) autopilot, computer games, Doppler autopilot, computer games, Doppler
radarradar
6.6. Expert system (E) Expert system (E) car diagnostics, car diagnostics, medical diagnosis, medical diagnosis,
stock tradingstock trading
7.7. Totally automated system (T) Totally automated system (T) telemarketing, telemarketing,
eft, space shuttleeft, space shuttle
Purpose of Web-Purpose of Web-sitesite
1.1. A retail channel A retail channel Amazon.comAmazon.com
2.2. Supplemental channel Supplemental channel Barnes & NobelBarnes & Nobel
3.3. Technical support Technical support Dell ComputerDell Computer
4.4. Embellish existing service Embellish existing service HBR, News HBR, News
websiteswebsites
5.5. Order processing Order processing Airlines, Expedia.comAirlines, Expedia.com
6.6. Convey information Convey information Kelly Blue Book, Dr. Kelly Blue Book, Dr.
KoopKoop
7.7. Organization membership Organization membership asq.orgasq.org
8.8. Games Games treeloot.com treeloot.com
Chapter 6Chapter 6
What are the dimensions of What are the dimensions of service quality?service quality?
Moments of TruthMoments of Truth• Each customer contact is called a Each customer contact is called a
moment of truth.moment of truth.
• You have the ability to either satisfy or You have the ability to either satisfy or dissatisfy them when you contact them.dissatisfy them when you contact them.
• A A service recovery service recovery is satisfying a is satisfying a previously dissatisfied customer and previously dissatisfied customer and making them a loyal customer.making them a loyal customer.
Dimensions of Service Dimensions of Service QualityQuality
1.1. ReliabilityReliability dependable over dependable over
timetime
2.2. ResponsivenessResponsiveness keeping keeping
customers waiting customers waiting
3.3. Assurance Assurance reputation, credentials, confidence, reputation, credentials, confidence,
track record track record
4.4. EmpathyEmpathy being a good listener, putting yourself in being a good listener, putting yourself in
their placetheir place
5.5. TangiblesTangibles cleanliness, physical cleanliness, physical
appearance appearance
Perceived Service QualityPerceived Service Quality
Word of mouth
Personal needs
Past experience
Expectedservice
Perceivedservice
Service Quality Dimensions
ReliabilityResponsiveness
AssuranceEmpathyTangibles
Service Quality Assessment1. Expectations exceeded ES<PS (Quality surprise)2. Expectations met ES~PS (Satisfactory quality)3. Expectations not met ES>PS (Unacceptable quality)
Service Quality Gap Service Quality Gap ModelModel
Customer
Perceptions
Customer
Expectations
Service
Delivery
Service Standards
ManagementPerceptions of Customer Expectations
Managing the Evidence
Conformance Service Design
Understanding the Customer
Customer Satisfaction GAP 5
Customer / Marketing Research
GAP 1
Conformance GAP 3
Communication GAP 4
Design GAP 2
Taguchi Loss FunctionTaguchi Loss Function
.500 .520.480
Loss ($)
Target .UpperLimit
.Lowerlimit
L (x) = k (x-T)2
Traditional loss function
Classification of Service Classification of Service FailuresFailures
with Poka-Yoke with Poka-Yoke OpportunitiesOpportunitiesServer Errors:Server Errors:
• Task Task checklistchecklist
• Treatment Treatment listening listening checkcheck
• Tangible Tangible clean clean uniformuniform
Customer Customer Errors:Errors:
• Preparation Preparation surveysurvey
• Encounter Encounter size size limitationlimitation
• Resolution Resolution computer computer beepbeep
BenchmarkingBenchmarkingBenchmarking is the systematic process of evaluating the work processes of organizations that are recognized as representing best practices for the purpose of improving performance.
World-Class Best
Functional
Internal
Industry
Competition
(12.1)
Walk-Through-AuditWalk-Through-Audit• Service delivery system should Service delivery system should
conform to customer expectations.conform to customer expectations.• Customer impression of service Customer impression of service
influenced by use of all senses.influenced by use of all senses.• Service managers lose sensitivity Service managers lose sensitivity
due to familiarity.due to familiarity.• Need detailed service audit from a Need detailed service audit from a
customer’s perspective. customer’s perspective.
Quality Costs Quality Costs PreventioPreventio
nnAppraisal Appraisal Internal Internal
FailuresFailuresExternaExterna
l l FailureFailure
ss•PlanningPlanning•Design Design ReviewReview•TrainingTraining•Process Process ControlControl•Process Process ImprovementImprovement•System System AuditingAuditing
•Supplier Supplier InspectionInspection•Product Product Inspecting/ChecInspecting/Checkingking•Product TestingProduct Testing•Measurement Measurement System System ValidationValidation•Product Product AuditingAuditing
•ReworkRework•ScrapScrap•Re-Re-inspectinginspecting•Re-testingRe-testing•DowntimeDowntime•Yield LossesYield Losses•DispositioninDispositioning Non-g Non-ConformancesConformances
•Customer Customer ReturnsReturns•Complaint Complaint AdjustmenAdjustmentsts•Warranty Warranty ChargesCharges•Customer Customer Loss Loss •ReputatioReputation Lossn Loss
Costs of Service QualityCosts of Service Quality(Bank Example)(Bank Example)
Failure costs Detection costs Prevention Failure costs Detection costs Prevention costscosts
External failureExternal failure: Process control Quality planning: Process control Quality planning Loss of future business Peer review Training programLoss of future business Peer review Training program Negative word-of-mouth Supervision Quality auditsNegative word-of-mouth Supervision Quality audits Liability insurance Customer comment card Data acquisition and analysisLiability insurance Customer comment card Data acquisition and analysis Legal judgments InspectionLegal judgments Inspection Recruitment and selection Recruitment and selection Interest penalties Supplier evaluationInterest penalties Supplier evaluation Internal failure:Internal failure: Scrapped forms Scrapped forms ReworkRework Recovery:Recovery: Expedite disruptionExpedite disruption Labor and materialsLabor and materials
Descriptive StatisticsDescriptive Statistics1.1. Measures of Central Tendencies (Location)Measures of Central Tendencies (Location)
• MeanMean
• Median = The middle valueMedian = The middle value
• Mode - The most frequent numberMode - The most frequent number
2. Measures of Dispersion (Spread)2. Measures of Dispersion (Spread)
• Range R=Maximum-MinimumRange R=Maximum-Minimum
• Standard DeviationStandard Deviation
• VarianceVariance
N
xi
N
)x( 2i
2
0
2
4
6
8
10
12
14
16
18
20
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Series1
Series2
Series3
Series4
Series5
Red Bead ExperimentRed Bead Experiment
Control ChartsControl Charts
+3+3σσ
AveragAveragee
-3-3σσ
Common Cause(Chance or Random)
Special Cause(Assignable)
Special Cause(Assignable)
Unconditional Service Unconditional Service Guarantee: Customer ViewGuarantee: Customer View
• Unconditional Unconditional L.L. Bean, Target L.L. Bean, Target
• Easy to understand and Easy to understand and communicate communicate 15 minutes or free15 minutes or free
• Meaningful Meaningful $3 rebate vs $3 rebate vs
free pizzafree pizza
• Easy to invoke Easy to invoke toll-toll-
free callfree call
• Easy to collect Easy to collect on the spot, Ritz-Carlton, on the spot, Ritz-Carlton,
restaurant managerrestaurant manager
Unconditional Service Unconditional Service Guarantee: Management Guarantee: Management
ViewView• Focuses on customers Focuses on customers
British AirwaysBritish Airways
• Sets clear standards Sets clear standards FedExFedEx
• Guarantees feedback Guarantees feedback ManpowerManpower
• Promotes an understanding of the Promotes an understanding of the service delivery system service delivery system
Bug KillerBug Killer
• Builds customer loyalty by making Builds customer loyalty by making expectations explicit expectations explicit reduce customer risk, reduce customer risk,
expectations explicit, retains dissatisfied customersexpectations explicit, retains dissatisfied customers
Customer Feedback andCustomer Feedback andWord-of-MouthWord-of-Mouth
• The average business only hears from 4% of their customers The average business only hears from 4% of their customers who are dissatisfied with their products or services. Of the who are dissatisfied with their products or services. Of the 96% who do not bother to complain, 25% of them have serious 96% who do not bother to complain, 25% of them have serious problems.problems.
• The 4% complainers are more likely to stay with the supplier The 4% complainers are more likely to stay with the supplier than are the 96% non-complainers.than are the 96% non-complainers.
• About 60% of the complainers would stay as customers if their About 60% of the complainers would stay as customers if their problem was resolved and 95% would stay if the problem was problem was resolved and 95% would stay if the problem was resolved quickly.resolved quickly.
• A dissatisfied customer will tell between 10 and 20 other A dissatisfied customer will tell between 10 and 20 other people about their problem.people about their problem.
• A customer who has had a problem resolved by a company will A customer who has had a problem resolved by a company will tell about 5 people about their situation.tell about 5 people about their situation.
Patronage
LoyaltySatisfactionRetention
SeverityOf
Failure
PerceivedServiceQuality
Psychologicalempathyapology
Tangible-fair fix-value add
Psychological
show interest
Follow-upService
Recovery
Tangible-small token
ServiceRecoveryExpectations
ServiceRecovery
CustomerLoyalty
ServiceGuarantee
Speed of Recovery
FrontlineDiscretion
ServiceFailure Occurs
--
ProviderAware ofFailure
-
apology
-Fair
Restitution
Pre-recovery Phase Immediate Recovery Phase Follow-up Phase
Service Recovery Framework
Approaches to Service Approaches to Service RecoveryRecovery
• Case-by-case Case-by-case individual, but fairindividual, but fair
• Systematic response Systematic response protocol to protocol to
handle complaintshandle complaints
• Early intervention Early intervention notify the customer notify the customer
immediatelyimmediately
• Substitute service Substitute service capitalizing on rival capitalizing on rival
failurefailure
Quality Principles ofQuality Principles ofContinuous ImprovementContinuous Improvement
1.1. Customer satisfactionCustomer satisfaction
2.2. Management by factsManagement by facts
3.3. Respect for peopleRespect for people
Flow ChartingFlow ChartingProcess
Process
Decision
Process
Process
Process
Process
InputDocument
OutputReport
Storage
Delay
Process
Yes
No
(AV.3)
CauseCause and Effect and Effect DiagramDiagram
a.k.a. Ishikawa Diagram, Fishbone a.k.a. Ishikawa Diagram, Fishbone DiagramDiagram
Process
Person Procedures
Material Equipment
Deming’s 14-PointsDeming’s 14-Points1. Fulfill the long-term needs.2. Chronic mistakes are unacceptable.3. Cease dependence on mass
inspection.4. End the practice of awarding
business on price tag alone.5. Improve constantly and forever the
system of production and service.6. Institute training.7. Institute leadership.
Deming’s 14-PointsDeming’s 14-Points8. Drive out fear.9. Break down barriers between staff areas.10. Eliminate slogans, exhortations, and
targets for the workforce.11. Examine the impact of work standards.12. Remove barriers to pride of workmanship.13. Institute a vigorous program of education
and retraining.14. Take action to accomplish the
transformation.
Philip Crosby’s 14-Step Philip Crosby’s 14-Step Zero Defect Quality Zero Defect Quality Improvement ProgramImprovement Program
Chapter 7Chapter 7
How does the service How does the service encounter describe a encounter describe a service firm’s delivery service firm’s delivery process?process?
Service
Organization
Efficiencyversus
satisfaction
Efficiencyversus
autonomy
CustomerContact
Personnel Perceived control
The Service Encounter The Service Encounter TriadTriad
• CultureCultureValues Values ServiceMaster (Service to the ServiceMaster (Service to the
Master)Master)
Behaviors Behaviors Disney (Choice of Disney (Choice of
language)language)
• EmpowermentEmpowermentInvest in people Invest in people like investing in like investing in
equipmentequipment
Use IT to enable personnel Use IT to enable personnel customer historycustomer history
Recruitment and training Recruitment and training match to match to
firm’s CSFfirm’s CSF
Anchor performance Anchor performance recognition and recognition and
rewardreward
The Service OrganizationThe Service Organization
CultureCulture
The shared beliefs and values The shared beliefs and values of an organization that guide of an organization that guide employee decision-making employee decision-making and behavior in the firm.and behavior in the firm.
EmpowermentEmpowerment
Providing contact personnel Providing contact personnel with the training and with the training and information to make information to make decisions for the firm without decisions for the firm without close supervision.close supervision.
Organizational ControlOrganizational Controlfor Employee Empowermentfor Employee Empowerment
Beliefs Systems
To contribute
Core values & mission
Identify core values
Boundary Systems
To do right Specify and enforce rules
Risks to be avoided
Diagnostic Control Systems
To achieve Build clear targets
Critical performance variables
Interactive Control Systems
To create Encourage learning
Strategic Uncertainties
Contact Personnel Contact Personnel AttributesAttributes
• FlexibilityFlexibility• Tolerance for AmbiguityTolerance for Ambiguity• Ability to Monitor and Change Ability to Monitor and Change
Behavior on the Basis of Behavior on the Basis of Situation CuesSituation Cues
• Empathy for CustomersEmpathy for Customers
SelectionSelection1. Abstract Questioning 1. Abstract Questioning “From your past “From your past
experience, …”experience, …”
2. Situational Vignette 2. Situational Vignette ability to “think on their feet” in substance ability to “think on their feet” in substance
and deliveryand delivery
3. Role Playing 3. Role Playing requires careful scripting and customer actor requires careful scripting and customer actor
rehearsalrehearsal
TrainingTraining
1. 1. Technical SkillsTechnical Skills
2. Unrealistic customer expectations2. Unrealistic customer expectations
3. Unexpected service failure3. Unexpected service failure
Contact PersonnelContact Personnel
1. 1. Unreasonable demands Unreasonable demands I want to take all my I want to take all my
luggage on boardluggage on board
2. Demands against policies 2. Demands against policies I have to I have to
smokesmoke
3. Unacceptable treatment of3. Unacceptable treatment of employees employees You’re You’re
an idiotan idiot
4. Drunkenness 4. Drunkenness Hey, where’s my drink?Hey, where’s my drink?
5. Breaking of societal norms 5. Breaking of societal norms I I
like to sunbath nudelike to sunbath nude
6. Special-needs customers 6. Special-needs customers Why don’t you Why don’t you
understand English?understand English?
Unrealistic customer Unrealistic customer expectationsexpectations
Unexpected Service Unexpected Service FailureFailure
1. Unavailable service 1. Unavailable service Why Why
isn’t the ATM working?isn’t the ATM working?
2. Slow performance 2. Slow performance Why hasn’t our Why hasn’t our
plane arrived?plane arrived?
3. Unacceptable service 3. Unacceptable service There’s a fly in my soup.There’s a fly in my soup.
Training on Unrealistic Training on Unrealistic Customer Expectations and Customer Expectations and Unexpected Service Failure Unexpected Service Failure • A prescribed response to a any given A prescribed response to a any given
situationsituation““I am very sorry, but federal safety regulations I am very sorry, but federal safety regulations
permit a passenger only two carry-on pieces permit a passenger only two carry-on pieces small enough to be stored under the seat or small enough to be stored under the seat or overhead. May I check your larger pieces overhead. May I check your larger pieces all the way to your final destination?”all the way to your final destination?”
• Anticipate the types of exchange they might Anticipate the types of exchange they might encounter through role playingencounter through role playing
Shopping attitudesShopping attitudes1. Economizing customer 1. Economizing customer compares value with compares value with
competitioncompetition
2. Ethical customer 2. Ethical customer moral obligation (Ronald McDonald moral obligation (Ronald McDonald
House)House) 3. Personalizing customer 3. Personalizing customer know know
your nameyour name
4. Convenience customer 4. Convenience customer pay extra for hassle free pay extra for hassle free
serviceservice
Customer as Co-ProducerCustomer as Co-Producer
1. 1. What is their role?What is their role?
2. How to train?2. How to train?
3. When to retrain?3. When to retrain?
The CustomerThe Customer
Service Encounter Service Encounter Success Factors Success Factors
Customer Service Provider Human Machine
HumanEmployee selectionInterpersonal skillsSupport technologyEngender trust
User friendlyVerificationSecurityEasy to access
MachineEasy to accessFast responseVerificationRemote monitoring
CompatibilityTrackingVerificationSecurity
Shopping attitudesShopping attitudes1. Economizing customer 1. Economizing customer compares value with compares value with
competitioncompetition
2. Ethical customer 2. Ethical customer moral obligation (Ronald McDonald moral obligation (Ronald McDonald
House)House) 3. Personalizing customer 3. Personalizing customer know know
your nameyour name
4. Convenience customer 4. Convenience customer pay extra for hassle free pay extra for hassle free
serviceservice
Customer as Co-ProducerCustomer as Co-Producer
1. 1. What is their role?What is their role?
2. How to train?2. How to train?
3. When to retrain?3. When to retrain?
The CustomerThe Customer
Service Encounter Service Encounter Success Factors Success Factors
Customer Service Provider Human Machine
HumanEmployee selectionInterpersonal skillsSupport technologyEngender trust
User friendlyVerificationSecurityEasy to access
MachineEasy to accessFast responseVerificationRemote monitoring
CompatibilityTrackingVerificationSecurity
Higher Customer Satisfaction
More Familiarity with Customer Needs and Ways of Meeting Them
Greater Opportunity for Recoveryfrom Errors
Higher EmployeeSatisfaction
Higher Productivity
Improved Quality of Service
MoreRepeatPurchases
Stronger Tendency to Complain about Service Errors
Lower Costs
Better Results
Satisfaction Mirror Satisfaction Mirror Satisfaction Mirror Satisfaction Mirror
Internal
Operating strategy andservice delivery system
Service concept Target market
Servicevalue
Customers
Loyalty
Productivity&
Outputquality
Servicequality
Capability
Satisfaction
Employees Satisfaction Loyalty
Revenuegrowth
External
Profitability
Customer orientation/quality emphasisAllow decision-making latitudeSelection and developmentRewards and recognitionInformation and communicationProvide support systemsFoster teamwork
Quality & productivity improvements yield higher service quality and lower cost
Attractive Value Service designed& delivered tomeet targetedcustomers’ needsSolicit customerfeedback
Lifetime valueRetentionRepeat BusinessReferrals
Service Profit Chain Service Profit Chain Service Profit Chain Service Profit Chain
Is attitude emphasized?Are job previews utilized?Are customers screened?
Are employees encouraged to refer friends?
Are referrals from the “best” employees given priority?
Is satisfactionmeasured periodically? Are measurements linked to other functions on the cycle?
Careful Employeeand Customer
Selection
(and Self-selection))
High-Quality Training
Well-DesignedSupport Systems Information Facilities
Greater Latitude to Meet
Customer’s Needs
Clear Limits on, and
Expectations of, Employees
AppropriateRewards
and FrequentRecognition
SatisfiedEmployees
EmployeeReferrals of
Potential Job
Candidates
Is training for job and life? Is it an important element of quality of work life?
Do they reflect needs of the service encounter?
Are they designed to foster relationships?
Does it reflect top management “talk”? Is it enough to allow delivery of results to customers?
Do they limit the “right” risks?Are they logical to employees?
Cycle of
Capability
Are they linked toservice objectives? Are they balanced between monetary and non-monetary?
Chapter 11Chapter 11
How do you forecast the How do you forecast the demand for services?demand for services?
Delphi MethodDelphi MethodNuclear Power Industry Nuclear Power Industry
ExampleExample11 66 55 66 1515 3535 66
No No jdgmt.jdgmt.
StrongStrongly ly
disagr.disagr.
DisagrDisagr..
Disagr. Disagr. SomewSomew
h.h.
UncertUncert..
Agree Agree somewsomew
h.h.
AgreeAgree StrongStrongly ly
agreeagree
RounRound 1d 1
RounRound 2d 2
RounRound 3d 3
Chapter 12Chapter 12
Describe strategies for Describe strategies for managing capacity and managing capacity and demand.demand.
Strategies for Matching Strategies for Matching Supply and Demand for Supply and Demand for
ServicesServices
DEMANDSTRATEGIES
PartitioningdemandDeveloping
complementaryservices
Establishingprice
incentivesDevelopingreservationsystems
Promoting off-peakdemand
Yieldmanagement
SUPPLYSTRATEGIES
Cross-training
employees
Increasingcustomer
participationSharingcapacity
Schedulingwork shifts
Creatingadjustablecapacity
Usingpart-time
employees
Daily Scheduling ofDaily Scheduling of Telephone Operator Telephone Operator
WorkshiftsWorkshifts
0
5
10
15
20
25
30
Time
Num
ber o
f ope
rato
rs
Scheduler program assigns tours so that the number of operators present each half hour adds up to the
number required Topline profile
12 2 4 6 8 10 12 2 4 6 8 10 12
Tour
12 2 4 6 8 10 12 2 4 6 8 10 12 0
500
1000
1500
2000
2500
Time
Cal
ls
Integer Linear Programming (ILP) Integer Linear Programming (ILP) ModelModel
for Weekly Nurse Staffing for Weekly Nurse Staffing RequirementsRequirements
Minimize x
Sunday x Monday
Thursday x Friday x Saturday x
Objective function :
1 + x 2 + x 3 + x 4 + x 5 + x 6 + x 7
Constraints :
2 + x 3 + x 4 + x5
+ x 6 3
x 3 + x 4 + x 5 + x 6 + x7 6
Tuesday x 1 + x
4 + x 5 + x 6 + x
7 5
Wednesday x 1 + x 2 + x
5 + x
6 + x
7 6
1 + x 2 + x 3
+ x6
+ x7 5
1 + x 2 + x 3 + x 4 + x7 5
1 + x 2 + x 3 + x 4 + x 5 5
Tour Requirement: 5 days on and 2 consecutive days off
Weekly Nurse Staffing Weekly Nurse Staffing ScheduleSchedule
Schedule matrix, x = day off
Nurse Su M Tu W Th F Sa
1 x x … … … … ...
2 … x x … … … … 3 … ... x x … … … 4 … ... x x … … … 5 … … … … x x … 6 … … … … x x … 7 … … … … x x … 8 x … … … … … xTotal 6 6 5 6 5 5 7Required 3 6 5 6 5 5 5Excess 3 0 0 0 0 0 2
Scheduling Part-time Bank Scheduling Part-time Bank TellersTellers
0
1
2
3
4
5
6
7
Tel
lers
req
uire
d
Mon. Tues. Wed. Thurs. Fri.
Two Full-time Tellers
54
1
32
1
432 1
5 2
Fri. Mon. Wed. Thurs Tues. 0
1
2
3
4
5
Te
llers
re
qu
ired
Decreasing part-time teller demand histogram
DAILY PART-TIME WORK SCHEDULE, X=workday
Teller Mon. Tues. Wed. Thurs. Fri.
1 x …. x …. x 2 x …. …. x x 3,4 x …. …. …. x 5 …. …. x …. x
Yield ManagementYield Management
• Fixed Capacity Fixed Capacity hotels, hotels,
airlinesairlines
• Ability to Segment Markets Ability to Segment Markets Saturday-night stay, Saturday-night stay,
Seasonal resort exampleSeasonal resort example
• Perishable Inventory Perishable Inventory standby standby
passengerspassengers
• Product Sold in Advance Product Sold in Advance Demand control Demand control
for a hotel examplefor a hotel example
• Fluctuating Demand Fluctuating Demand Increase utilization (slow demand) Increase Increase utilization (slow demand) Increase
revenue (high demand)revenue (high demand)
• Low Marginal Sales Cost and High Low Marginal Sales Cost and High Capacity Change Cost Capacity Change Cost se selling lling
aairline snack vs. cost on bigger aircraftirline snack vs. cost on bigger aircraft
Most appropriate for services with the following characteristics:
Chapter 15Chapter 15
What are the challenges of What are the challenges of managing the service managing the service supply relationships?supply relationships?
Deming’s 14-PointsDeming’s 14-Points
Point 4
End the practice of awarding business on price tag alone.
Customer-Supplier Duality Customer-Supplier Duality in Service Supply in Service Supply
Relationships (Hubs)Relationships (Hubs)
Supplier
Customer
Material transfer
ServiceDesign
ServiceProvider
Information transfer
Two-Level Bidirectional Two-Level Bidirectional Service Supply Service Supply RelationshipRelationship
ServiceService
CategoryCategoryCustomCustom
erer
--SupplieSupplie
rr
>>InputInput
Output>Output>ServiceService
ProvideProviderr
>>InputInput
Output>Output>ProviderProvider
’s’s
SupplierSupplier
MindsMinds PatientPatient >>DisturbDisturbeded
Treated>Treated>
TherapiTherapistst
>>PrescriptPrescriptionion
Drugs>Drugs>
PharmaPharmacycy
BodiesBodies PatientPatient >>BloodBlood
DiagnosisDiagnosis>>
PhysiciPhysicianan
>>SampleSample
Test Test Result>Result>
LabLab
BelonginBelongingsgs
DriverDriver >>CarCar
RepairedRepaired>>
GarageGarage >>EngineEngine
Rebuilt>Rebuilt>MachineMachine
ShopShop
InformatiInformationon
HomeHome
BuyerBuyer>>PropertPropert
yy
Loan>Loan>
MortgaMortgagege
CompaCompanyny
>>LocationLocation
Clear Clear Title>Title>
TitleTitle
SearchSearch
Sources of Value in Sources of Value in Service Supply Service Supply RelationshipsRelationships
• Managing Productive CapacityManaging Productive Capacity1. Transfer 1. Transfer make knowledge availablemake knowledge available web based FAQ web based FAQ
2. Replacement 2. Replacement substitute technology for server digital substitute technology for server digital
blood pressure deviceblood pressure device
3. Embellishment 3. Embellishment enable self-service by teaching enable self-service by teaching
change surgical dressingchange surgical dressing
• Management of PerishabilityManagement of Perishability1.1. Time allotment based on “best use”Time allotment based on “best use” real-real-
time schedulestime schedules
2. Idle time for training2. Idle time for training computer-based computer-based (mobile data terminals)(mobile data terminals)
Outsourcing ServicesOutsourcing ServicesBenefitsBenefits
1. Allows the firm to focus on its llows the firm to focus on its core competencecore competence
2.2. Service is cheaper to outsource Service is cheaper to outsource than perform in-housethan perform in-house
3.3. Provides access to latest Provides access to latest technologytechnology
4.4. Leverage benefits of supplier Leverage benefits of supplier economy of scaleeconomy of scale
Outsourcing ServicesOutsourcing ServicesRisksRisks
1. Loss of direct control of quality
2. Jeopardizes employee loyalty
3. Exposure to data security and customer privacy
4. Dependence on one supplier compromises future negotiation leverage
5. Additional coordination expense and delays
6. Atrophy of in-house capability to perform service
Taxonomy for Taxonomy for Outsourcing Business Outsourcing Business
ServicesServices
Importance of Service Low High
Property Focus
Facility Support: -Laundry -Janitorial -Waste disposal
Equipment Support: -Repairs -Maintenance -Product testing
of People
Employee Support: -Food service -Plant security -Temporary personnel
Employee Development: -Training -Education -Medical care
Service
Process
Facilitator: -Bookkeeping -Travel booking -Packaged software
Professional: -Advertising -Public relations -Legal