Welcome to Service Management

Chapter 01Role of Services in an Economy

James FitzsimmonsSeay Professor of Business Emeritus

University of Texas at Austin

McGraw-Hill/IrwinService Management: Operations, Strategy, and Information Technology, 6e

Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Learning Objectives Identify traits that all services have in common. Discuss the central role of services in an economy. Identify and differentiate the five stages of

economic activity. Describe the features of preindustrial, industrial,

and postindustrial societies. Describe the features of the new service economy. Contrast the push vs. pull theories of innovation. Identify the sources of service sector growth.

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Service Definitions

Services are deeds, processes, and performances.

Valarie Zeithaml & Mary Jo Bitner

A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer.

James Fitzsimmons

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Definition of Service Firms

Service enterprises are organizations that facilitate the production and distribution of goods, support other firms in meeting their goals, and add value to our personal lives.

James Fitzsimmons

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Role of Services in an Economy

INFRASTRUCTURE SERVICE· Communications· Transportation· Utilities· Banking

PERSONAL SERVICES· Healthcare· Restaurants· Hotels

CONSUMER(Self-service)

GOVERNMENT SERVICES· Military· Education· Judicial· Police and fire protection

DISTRIBUTION SERVICES

· Wholesaling · Retailing · Repairing

FINANCIAL SERVICES · Financing · Leasing · Insurance

MANUFACTURINGServices inside company:

· Finance· Accounting· Legal· R&D and design

BUSINESS SERVICES· Consulting· Auditing· Advertising· Waste disposal

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Percent Employment in ServicesTop Ten Postindustrial Nations

Country 1965 1975 1985 1995 2005

United States 59.5 66.4 70.0 74.1 78.6

United Kingdom 51.3 58.3 64.1 71.4 77.0

The Netherlands 52.5 60.9 68.3 73.4 76.5

Sweden 46.5 57.7 66.1 71.5 76.3

Canada 57.8 65.8 70.6 74.8 76.0

Australia 54.6 61.5 68.4 73.1 75.8

France 43.9 51.9 61.4 70.0 74.8

Japan 44.8 52.0 57.0 61.4 68.6

Germany 41.8 n/a 51.6 60.8 68.5

Italy 36.5 44.0 55.3 62.2 65.5

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7cf. Figure 1.2 in text

Stages of Economic Activity

Primary (Extractive): Agriculture, Mining, Fishing, Forestry

Secondary (Goods-Producing): Manufacturing, Processing

Tertiary (Domestic Services): Restaurants, Hotels, Laundry, Maintenance

Quaternary (Trade and Commerce): Transportation, Communications, Retailing, Finance, Government

Quinary (Extending Human Potential): Health, Education, Research, Arts, Recreation

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Trends in U.S. Employment by Sector

0

10

20

30

40

50

60

70

80

90

1850

1860

1870

1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

Year

Pro

po

rtat

ion

of

tota

l em

plo

yem

ent

Service

Manufacturing

Agriculture

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Distribution of GDP in the US Economy

Product Services

Physical

Information

6%

10%

31%

53%

37%

63%

84%16%

D

BA

C

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Stages of Economic Development

Pre- Use of Standard dominant Human Unit of of Living Society Game Activity Labor Social Life Measure Structure

Technology

Pre- Against Agriculture Raw Extended Sub- Routine Simple hand Industrial Nature Mining muscle household sistence Traditional tools

power Authoritative

Industrial Against Goods Machine Individual Quantity Bureaucratic Machines fabricated production tending of goods Hierarchical nature Post- Among Services Artistic Community Quality of Inter- Information industrial Persons Creative life in terms dependent Intellectual health, education, recreation

1-11Maslow Hierarchy of Needs

Nature of Service Sector

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Updates of Figure 1.3 and 1.4 can be found at:Occupational Outlook Quarterly http://www.bls.gov/opub/ooq/

Percent Distribution of

Wage and Salary

Employment by Industry Sector,

2006

The 21st Century Career

Percent Change in Wage and

Salary Employment by Industry

Sector, Projected

2006-2016

The Four Realms of an Experience

Customer Participation

Passive Active

Environmental

Absorption Entertainment (Movie)

Education (Language)

Relationship Immersion Esthetic (Tourist)

Escapist (ScubaDiving)

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Typology of Services in the 21st Century

Core Experience Essential Feature Examples

Creative Present ideas Advertising, theater

Enabling Act as intermediary Transportation, communications

Experiential Presence of customer Massage, theme park

Extending Extend and maintain Warranty, health check

Entrusted Contractual agreement Service/repair, portfolio mgt.

Information Access to information Internet search engine

Innovation Facilitate new concepts R&D services, product testing

Problem solving Access to specialists Consultants, counseling

Quality of life Improve well-being Healthcare, recreation, tourism

Regulation Establish rules and regulations Environment, legal, patents

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Economic Evolution

Economy Agrarian Industrial Service Experience

EconomicOffering

Food Packagedgoods

Commodityservice

Consumer services

Businessservices

Function Extract Make Deliver Stage Co-create

Nature Fungible Tangible Intangible Memorable Effectual

Attribute Natural Standardized Customized Personal Growth

Method of Supply

Stored in bulk

Inventoried Delivered on demand

Revealed over time

Sustained over time

Seller Trader Producer Provider Stager Collaborator

Buyer Market Customer Client Guest Collaborator

Expectation Quantity Features Benefits Sensations Capability

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Experience Design Principles

Theme the Experience (Forum shops) Harmonize Impressions with Positive Cues

(O’Hare airport parking garage) Eliminate Negative Cues

(Cinemark talking trash containers) Mix in Memorabilia (Hard Rock T-shirts) Engage all Five Senses (Mist in Rainforest)

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Source of Service Sector Growth

Information Technology (e.g. Internet) Innovation

Push theory (e.g. Post-it) Pull theory (e.g. Cash Management) Services derived from products (e.g. Netflix)

Exploiting information (e.g. Auto part sales) Difficulty of testing service prototypes Changing Demographics

Aging of the population Two-income families Growth in number of single people Home as sanctuary

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Distribution of GDP in the US Economy

Product Services

Physical

Information

6%

10%

31%

53%

37%

63%

84%16%

D

BA

C

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Discussion Topics Illustrate how the type of work he

or she does influences a person’s lifestyle. For example, contrast a farmer, a factory worker, and a school teacher.

Is it possible for an economy to be based entirely on services?

What is the value of self-service in an economy?

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Interactive Class Exercise

The class breaks into small groups. Each group identifies service firms that should be listed in the top Fortune 100 and places them in rank order of estimated annual revenue.

Fortune 100 List

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