faculty of computers and information...• perishability (هيحلاصلا / داسفلل لباق):...

Assuit University

Faculty of Computers and Information

Academic Year 2015 / 2016

Elective Course – Year 4

Service Management

Understanding Services

The Role of Services in an Economy

The Nature of Services

Services Strategy

Service’s cornerstone

People

Products Processes

Partners

Service Management; Is all about the efficient, effective and

economical use of its 4Ps

People

Products

Processes

Partners

Service-Product Bundle

Distinguish between PRODUCT and SERVICE is difficult, because Purchase a Product is accompanied by some facilitating service, and

vice versa Purchase a Service often includes facilitating goods.

Example;

• Product installation • Food at restaurant

Element Core Goods

Example

Core Service

Example

Business Custom clothier Business hotel

Core Business suits Room for the night

Peripheral

Goods

Garment bag Bath robe

Peripheral

Service

Deferred payment plans

In house restaurant

Variant Coffee lounge Airport shuttle

Distinctive مميزه Characteristics of Services

• Distinction التمييز between Services Inputs and Services Resources;

– Services Inputs are the customers themselves

– Services Resources are the Facilitating Goods, Labor, and Service’s Capital

• Customers are major part of the service system, and they participate in the services process. (customers arrive at

their own unique demands on the service system)

• Matching services capacity with demand is a challenge

Distinctive Characteristics of Services

• Banking Service (example)

The Focus is on processing data & information, not people

– Electronic funds transfer, can be substituted for physically depositing a payroll check.

– Thus, customer presence at bank is unnecessary


• Customer Participation in the Service Process: requires attention to facility design, opportunities for co-production, concern for customer and employee behavior -promote confidence- (e.g. Front-

Office & Back-Office)

– Fast food restaurants; customer is a significant component of the service process (place the order & expected to clear the table)

• Simultaneity التزامن: Service cannot be stored, it is created and consumed simultaneity. – Customer waiting (Queuing) is an issue in service management, thus selecting

service capacity, facility utilization, and use of idle time all are balanced against customer waiting time

– Opportunities for personal selling, interaction creates customer perceptions of quality (product can be inspected before delivery, but service rely on other measures)


• Perishability (قابل للفساد / الصالحيه): Service is a perishable commodity cannot be stored, it is lost forever if not used (e.g. empty airline seat, unoccupied hotel, ..).

– Full utilization of service is management challenge.

– Opportunity loss of idle capacity, need to match supply with demand

– To face the variable demand and Time-Perishable capacity there are three options;

1. Smooth Demand (reservation, appointment, and/or price incentives)

2. Adjust Service Capacity (part-timers in peak Hrs, work shifts according to demand, and/or increasing the customer self-service)

3. Allow customer to wait - last option

• Intangibility: Service is an idea and concept, but product is thing. Thus, services innovations are not patentable. – Service provider use Franchise concept to sell its idea and establish a

brand name, however, customer rely on reputation and certification granted from government)


• Heterogeneity عدم التجانس: – The Combination of the intangible nature of services and the customer

as participant in the service delivery system results in variation of service from customer to customer.

– The interaction between customer and employee in services, creates satisfying human work experience.

– In service, work activity generally is oriented toward people rather than things, however, there are exceptions e.g. process information (communications), or customers’ property (brokerage services)

– In service, employee is the firm’s sole contact with customers, therefore employees’ attitudes & performance are important for the success of the service provider firm.

– In service business you cannot make happy customer (guests) with unhappy employees.., “J. Willard Marriott”

Non-ownership Classification of Services

• In service business, firms share their resources among customer by allocating the use of the service. Customers use the firm’s asset for a specific time (temporary ownership)

• Sharing resources among customers presents management challenges;

– Returning goods to acceptable condition (renting)

– Keeping the resource skill (consultation)

– Avoid idle periods when hours are not billable (pricing policy)

Non-ownership Classification of Services

Type of

Service Customer value Examples

Management

Challenge

Goods rental Obtain temporary

right to exclusive use

Vehicles, tools,

furniture, equipment

Site selection and

maintenance

Place and space

rental

Obtain exclusive use

of defined portion of

a larger space

Hotel room, seat on

airplane, storage unit

Housekeeping and

achieving economies

of scale

Labor and

expertise

Hire other people to

do a job

Car repair, surgery,

management

consulting

Expertise is a

renewable resource,

but time is perishable

Physical

facility usage

Gain admission to a

facility for a period of

time

Theme park, camp

ground, physical

fitness gym

Queuing and crowd

control

Network usage Gain access to

participate

Electric utility, cell

phone, internet

Availability and

pricing decisions

The Service Package

• Supporting Facility: The physical resources that must be in place before a service can be sold.

Examples are golf course, ski lift, hospital, airplane.

• Facilitating Goods: The material consumed by the buyer or items provided by the consumer.

Examples are food items, legal documents, golf clubs, medical history.

• Information: Operations data or information that is provided by the customer to enable efficient and customized service.

Examples are patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi.

The Service Package

• Explicit Services: Benefits readily observable by the senses.

The essential or intrinsic features.

Examples are quality of meal, attitude of the waiter, on-time departure.

• Implicit Services: Psychological benefits or extrinsic features which the consumer may sense only vaguely.

Examples are privacy of loan office, security of a well lighted parking lot.

Service Package

Service Experience

Explicit Services

Implicit Services

Supporting Facility

The Service Package is defined as a bundle of goods and

services with information that is provided in some environment

Grouping Services by Delivery Process

• Concept of service management should be applicable to all service organizations (e.g. hospital administrators could

learn from restaurant and hotel business)

• In Service Process Matrix, services are classified across two dimensions that significantly affect the character of the service delivery process.

– Vertical dimension measures degree of labor intensity (the ratio of labor cost to capital cost) كثافه

– Horizontal dimension measures degree of customer interaction and customization (ability of customer to

affect personally the nature of service being delivered)

The Service Process Matrix

Service Shop Low labor / high interaction and customization

• Hospitals • Auto repair

Service Factory Low labor / low interaction and customization

• Airlines • Hotels • Resorts & recreation

Professional service High labor / high interaction and customization

• Physicians • Lawyers • Accountants

Mass Service High labor / low interaction and customization

• Retailing • Schools • Wholesaling

Degree of interaction and customization

Low High

Low

High

De

gre

e o

f la

bo

r in

ten

sity

Low High

Low

High

Challenges for Service Managers

Service Shop Service Factory

Professional service Mass Service

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 • Methods development and control • Employees’ welfare • Start-up of new units • Managing growth

Low interaction / Low customization • Marketing • Making service

“warm” • Attention to

physical surroundings

High interaction / High customization • Maintaining quality • Managing

advancement of people delivering service

• Gaining employee loyalty

• Managing flat organization

• Fighting cost increases

Classifying Services for Strategic Insights

Strategic insights that transcendيتجاوز industry boundaries are needed;

e.g. Competitive strategies used by Banking could find an application in laundry services, both deal with a customer’s property. (drop-off & pick-up Vs. ATM )

• The following classification schemes provide an appreciation of possible strategic dimensions that transcend service industry boundaries “Nature of the Service Act” ;

1. Relationship with Customers

2. Customization and Judgment

3. Nature of Demand and Capacity

4. Method of service Delivery


Nature of the Service Act; Consider across 2 dimensions; who or what is the direct recipient of

the service Vs. the tangible nature of the service. This creates 4

possible classifications

• Classifications raises questions about the way of service delivery, the availability of customer during delivery of the service and at which stage;

• To initiate the service • To terminate the service transaction • Not at all

• Or, throughout the service

• The service facility as part of the delivery process; – Dose customer come to the service or service travel to customer (e.g. Ambulance)

– Facility design & employee interaction (customer’s impression)

Classifying Services for Strategic Insights Nature of the Service Act

Physical possessions • Freight transportation • Repair & maintenance • Laundry & dry cleaning • Veterinary care

People’s bodies • Health care • Passenger

transportation • Beauty salons • Restaurants

Intangible assets • Banking • Legal services • Accounting • Securities • insurance

People’s minds • Education • Broadcasting • Information services • Theaters • Museums

Direct recipient of the service

People Property

Tangible

Intangible

Nat

ure

of

the

se

rvic

e A

ct


1. Relationship with Customers • Build long-term relation with customer in person, which is not the

case in manufacture (through distribution channel)

• Knowing your customer is a significant competitive advantage for a service provider

• Radio / TV • Police protection • Public highway

• Insurance • Telephone subscription • Banking

• Toll highway • Pay phone • Restaurant • Public transportation

• Retailing • Schools • Wholesaling

Type of relation between service firm and its customer

Membership No formal relation

Continuous

delivery

Discrete

transactions

Nat

ure

of

serv

ice

de

live

ry


2. Customization and Judgment • Because service is created as it is consumed, and customer is often a

participant in the process, thus to tailor the service to customer need is an exist opportunity.

• Education (large classes) • Preventive health

programs • Family restaurant

• Surgery • Taxi service • Gourmet restaurant

• Public transportation • Movie theater • Spectator sports • Institutional food service

• Telephone service • Hotel service • Retail banking • cafeteria

Degree of customization

Low High

Low

High

Exte

nt

to w

hic

h c

ust

om

er

con

tact

e

mp

loye

es

exe

rcis

e ju

dgm

en

t in

m

eet

ing

cust

om

er

ne

ed

s


3. Nature of Demand and Capacity

• Inventory is not an option, thus the extent of demand and supply imbalances varies across service industries.

• Insurance • Legal services • Banking • Laundry & dry cleaning

• Electricity • Telephone • Police emergencies • Maternity unit - Hospital

• Fast-Food restaurant • Movie theater • Gas station

• Tax preparation • Hotels • Passenger transportation

Extent of demand fluctuations over time

Wide Narrow

Peak demand

met without

major delay

Peak demand

regularly exceeds

capacity

Exte

nt

to w

hic

h d

em

and

ex

cee

ds

cap

acit

y


4. Method of service Delivery • Has both a geographic component and a level-of-customer-

interaction component.

• Services with multiple sites have significant management implications for ensuring Quality & Consistency

– Using Internet-USP allows customer to do some Banking transaction from home or to track their packages, thus decrease amount of physical interaction with human service provider.

Bus service Fast-food chain

Theater Barbershop

Mail delivery

Taxi

Telephone company Credit card company

Single site Multiple site

Customer travels to service

Service firm delivers

Transaction at arm’s length

A availability of service outlets

Nat

ure

of

serv

ice

de

live

ry

Open-System View of Services

• In an Open-System environment with customer as a participant, the role of Service Operation Manager includes the functions of both Production and Marketing, which is not the case in traditional manufacturing as both functions are separated.

• For services, the process is the product

• Customer impressions is based on the total service experience not just on the explicit service performed. Employee attitudes, facility

design, … (service quality)

• In open-system customer participate actively in the process, which can increase productivity and create a competitive edge. (providing a salad bar at restaurant)

Open-System View of Services

Service Process

Service Operations Manager

Service Package

Consumer Demand Service Personnel

Evaluation

Input

Alter

demand

output

Schedule

supply

Control Monitor

Modify as necessary

Define standard

Basis of

selection Communicate

by advertising

Consumer arrivals Consumer

departures

• Production function Monitor & control process

• Marketing function Interact with consumers

Control demand

Perceived needs

Location

Empowerment

Training

Attitudes

Criteria

Measurement

Consumer participant

Consumer – provider

interface

Supporting facility

Facilitating goods

Information

Explicit services

Implicit services

• Explain what is meant by a service-product bundle.

• Identity and critique the five distinctive characteristics of a

service operation and explain the implications for

managers.

• Explain how services can be described as customers

renting resources.

• Describe a service using the five dimensions of the service

package.

• Use the service process matrix to classify a service.

• Explain how a strategic classification of services can be

helpful to managers.

• Explain the role of a service manager from an open-

systems view of service.


The Nature of Services Key Terms & Definitions

– Back Office

– Explicit services

– Facilitating goods

– Front Office

– Implicit services

– Service Package

– Service process matrix

– Supporting facility

– Time-perishable capacity

Understanding Services

The Role of Services in an Economy


Services Strategy

3. Service Strategy Strategic service vision

Competitive environment of services.

How a service competes using the three generic service strategies.

What is meant by qualifiers, service winners, and service losers.

The competitive role of information in services.

The concept of the virtual value chain and its role in service innovation.

Identify potential limits in the use of information as a competitive strategy.

Categorize a service firm according to its stage of competitiveness.

Service life cycle

Service Strategy

(Product Mgmt.)

Service Design (Planning)

Service Transition

(Implementation)

Service Operation

(Delivery Mgmt.)

Continual Service Improvement (Quality & Optimization)

• Portfolio Mgmt. • Financial Mgmt. • Demand Mgmt.

• Service Catalogue • Service Level Mgmt. • Capacity Mgmt. • Availability Mgmt. • Continuity Mgmt. • Information Security • Supplier Mgmt.

• S & T Mgmt. • Change Mgmt. • SACM Mgmt. • Release & Deploy • Validation • Evaluation • Knowledge Mgmt.

• Event Mgmt. • Incident Mgmt. • Fulfillment Mgmt. • Problem Mgmt. • Access Mgmt.

Service Lifecycle

The Strategic Service Vision

• Service begins with; Idea & Need

• In formulating a strategic service vision, a number of questions should be categorized and asked;

– Questions about “Service Delivery System”

– Questions about “Operating Strategy”

– Questions about “Service Concept”

– Questions about “Target Market Segment”

• How are the effectiveness of these categories will support each others and as an one Strategic Service Vision

The Strategic Service Vision Service Delivery System

What are important features of the service delivery system including:

role of people, technology, equipment, layout, procedures?

What capacity does it provide,

normally, at peak levels?

To what extent does it, help insure quality standards, differentiate the service from competition, provide barriers to entry by competitors?

Operating Strategy

What are important elements of the strategy: operations, financing, marketing, organization, human resources, control? On which will the most effort be concentrated? Where will investments be made? How will quality and cost be controlled: measures, incentives, rewards? What results will be expected versus competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers?

Target Market Segment

What are common characteristics of important market segments? What dimensions can be used to segment the market, demographic, psychographic? How important are various segments? What needs does each have? How well are these needs being served, in what manner, by whom?

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? What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed? D

ose the s

erv

ice d

eliv

ery

sys

tem

support

the o

pera

ting s

trate

gy?

To w

hat

exte

nt

is the v

alu

e o

f re

sults a

nd p

rocess q

ualit

y fo

r

custo

mer

levera

ged o

ver

cost

to the s

erv

ice p

rovid

er?

How

well

is t

he s

erv

ice c

oncept

positio

ned in r

ela

tion

to c

usto

mers

’ needs a

nd c

om

petito

rs’ offering?

The Service Competitive Environment

• Relatively Low Overall Entry Barriers Service innovations are not patentable and not capital-intensive, thus it easily can be copied.

• Economies of Scale Limited Due to nature of service (simultaneous / consumption) customer travel to service or service travel to customer. The necessity of travel limits the market area (franchise or using internet e.g Amazon.com)

• Erratic Sales Fluctuations Service demand varies as a function of the day time and the week day (seasonally)

• No advantage in Dealing with Buyers or Suppliers The small size of many service firms places them at a disadvantage in bargaining with buyer or suppliers

• Product Substitutions for Service Product innovations can be substitution for services (e.g. home diabetes test). Thus, service firms most not only watch competitors but also anticipate potential product innovations that might make their service obsolete.

• Customer Loyalty Established firms using personalized service create a loyal customer base, which becomes a barrier to entry by new services.

• Exit Barriers Marginal service firms may continue to operate despite low or even nonexistent profits. E.g. firms may have employment of family members rather than maximizing profit. Other firms have a hobby or romantic appeal that provides their owners with enough job satisfaction to offset low financial compensation. (difficult on Profit-motivated firms)

The Service Competitive Environment

Competitive Service Strategies

• Overall Cost Leadership – Seeking out Low-Cost Customers – Standardizing a custom Service – Reducing the personal Element in Service Delivery – Reducing Network Costs – Taking Service Operations offline

• Differentiation (Being unique)

– Making the Intangible Tangible (memorable)

– Customizing the Standard product – Reducing Perceived Risk – Giving Attention to Personnel Training – Controlling Quality

• Focus “the idea is servicing a particular target market very well

by addressing customers’ specific needs”

Winning Customers in the Marketplace Customer Criteria for Selecting a Service Provider

• Availability (24 hour ATM)

• Convenience (Site location)

• Dependability (On-time performance)

• Personalization (Know customer’s name)

• Price (Quality surrogate)

• Quality (Perceptions important)

• Reputation (Word-of-mouth)

• Safety (Customer well-being)

• Speed (Avoid excessive waiting)

• Service Qualifier: To be taken seriously a certain level must be attained on the competitive dimension, as defined by other market players.

Examples are cleanliness for a fast food restaurant or safe aircraft for an airline.

• Service Winner: The competitive dimension used to make the final choice among competitors.

Example is price.

• Service Loser: Failure to deliver at or above the expected level for a competitive dimension.

Examples are failure to repair auto (dependability), rude treatment (personalization) or late delivery of package (speed).

Winning Customers in the Marketplace

Competitive Role of Information in Services

• Creation of barriers to entry Barriers to entry can be created by using economies of scale, building market share, create switching costs, investing in communications network, and using database and information technologies to strategic advantage. Three uses of information for creating barriers to entry; – Reservation Systems – Frequent User Club

– Switching costs

• Revenue Generation Real-time IT with focus on internal operations can play a competitive role in increasing revenue opportunities.

– Yield management – Point-of-sale – Expert systems

Competitive Role of Information in Services

• Database Asset The DB a service firm possesses can be hidden asset of strategic importance. The expense of assembling and maintaining a large DB is itself a barrier to entry by competitors.

– Selling Information – Developing Services – Micromarketing

• Productivity Enhancement New developments in the collection and analysis of information have increased the ability to manage multisite service operations. – Inventory Status (e.g. hand-held)

– Data Envelopment Analysis (linear programming technique to evaluate nonprofit and public sector org.)

Strategic Role of Information in Services

Database Asset • Selling Information • Developing Services • Micromarketing

Creation of barriers to entry • Reservation Systems • Frequent User Club • Switching costs

Productivity Enhancement • Inventory Status • Data Envelopment Analysis

Revenue Generation • Yield management • Point-of-sale • Expert systems

Competitive use of information

Online

(Real time)

Offline

(Analysis)

External

(Customer)

Internal

(operations)

Limits in the use of information

• Anti-competitive (e.g. Barrier to entry)

• Fairness (e.g. Yield management)

• Invasion of Privacy (e.g. Micro-marketing)

• Data Security (e.g. Medical records)

• Reliability (e.g. Credit report)

Using Information to Categorize Customers

• Coding is grades customers on how profitable their business.

• Routing is used by call centers to place customers in different queues based on customer code.

• Targeting allows choice customers to have fees waived and get other hidden discounts.

• Sharing data about your transaction history with other firms is a source of revenue.

Service Strategy Discussion Topics

1. Give examples of service firms that use both the strategy of focus and differentiation and the strategy of focus and overall cost leadership.

2. What ethical issues are associated with micro-marketing?

3. For each of the three generic strategies (i.e., cost leadership, differentiation, and focus) which of the four competitive uses of information is most powerful?

4. Give an example of a firm that begin as world-class and has remained in that category.

5. Could firms in the “world-class service delivery” stage of competitiveness be described as “learning organizations”?

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