lecture 2 - new services development auto saved]

8/3/2019 Lecture 2 - New Services Development Auto Saved]

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ISM 270Service Engineering and

ManagementLecture 2


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Notes

Video of class available from website

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Password:

Homework 1 due next week Homework 2 due 2 weeks

Office hours 5pm room 2085

Computer access to SOE account available Library challenges


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Homework: Week 1

Link
http://../homework/ISM270Homework1.dochttp://../homework/ISM270Homework1.doc


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Data Envelopment Analysis (DEA)

Method for evaluating efficiency of similarvenues/products Incorporates inputs and outputs not just one

dimensional

Uses LINEAR PROGRAMMING (LP) KEY IDEA:

Weight the inputs and outputs to make one unit asefficient as possible, relative to all others

If this is 100% efficient, then the unit is on the frontierof efficiency;

If less than 100%, there are other units that couldutilize the SAME inputs for MORE outputs


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DEA summary of terms

Define variables E_k = efficiency of unit k

u_j= coefficient for output j (relative decrease in efficiency perunit reduction of output value)

v_i = coefficient for input i (relative increase in efficiency per unitdecrease of input value)

O_jk = observed ouput j units generated by service unit k duringone time period

I_ik = no. units input used by service unit k during one period

Note: k=1..K = service unit counter

j=1..M = output counter

i=1..N = input counter


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DEA Objective and constraints

Niv

Mju

KkIvIvIv

OuOuOu

ts

IvIvIvOuOuOuE

i

j

NkNkk

MkMkk

NeNee

MeMeee

,...,2,1,0

,...,2,1,0

,...,1,1...

...

..

...

...max

2211

2211

2211

2211

Evaluating unit eTrick = Rescaling to get linear equations

KkIvIvIvOuOuOu

ts

IvIvIv

NkNkkMkMkk

NeNee

,...,1,0).. .(.. .

..

1.. .

22112211

2211


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Example from Text: Burger Palace

Small, artificial example for illustration!

Page 68

Excel formulation
http://../homework/H1.xlshttp://../homework/H1.xls


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The Nature of Services


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Learning Objectives Classify a service into one of four categories

using the service process matrix.

Describe a service using the four dimensions

of the service package. Discuss the managerial implications of the

distinctive characteristics of a serviceoperation.

Discuss the insights obtained from a strategicclassification of services.

Discuss the role of a service manager from

an open-systems view of service.


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An Integrated Approach to ServiceManagement

The Eight Components Product Elements Place, Cyberspace, and Time

Promotion and Education Price and Other User Outlays+ Process+ Productivity and Quality

+ People+ Physical Evidence

Require the Integration of Marketing,Operations, and Human Resources


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Service/Product Bundle

Element CoreGoods

Example

CoreService

Example

Business Custom clothier Business hotel

Core Business suits Room for thenight

Peripheral

Goods

Garment bag Bath robe

Peripheral

Service

Deferredpayment plans

In houserestaurant

Variant Coffee lounge Airport shuttle


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The Service Process Matrix

Degree Degree of Interaction and Customization

of labor Intensity Low HighService factory: Service shop:

* Airlines * Hospitals

Low * Trucking * Auto repair

* Hotels * Other repair services

* Resorts and recreation

Mass service: Professional service:

* Retailing * Doctors

High * Wholesaling * Lawyers* Schools * Accountants

* Retail aspects of * Architects

commercial banking


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

Information: Operations data or information that is provided by the customer toenable efficient and customized service. Examples are patient medical records,seats available on a flight, customer preferences, location of customer to dispatch ataxi.

Explicit Services: Benefits readily observable by the senses. The essential orintrinsic features. Examples are quality of meal, attitude of the waiter, on-timedeparture.

Implicit Services: Psychological benefits or extrinsic features which the consumermay sense only vaguely. Examples are privacy of loan office, security of a well lightedparking lot.


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Distinctive Characteristics of Services

Customer Participation in the Service Process: attention tofacility design but opportunities for co-production

Simultaneity: opportunities for personal selling, interactioncreates customer perceptions of quality

Perishability: cannot inventory, opportunity loss of idlecapacity, need to match supply with demand

Intangibility: creative advertising, no patent protection,importance of reputation

Heterogeneity: customer participation in delivery processresults in variability


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Strategic Service Classification(Nature of the Service Act)

Direct Recipient of the Service

Nature of

the Service Act People Things

Peoples bodies: Physical possessions:

Health care Freight transportation

Passenger transportation Repair and maintenance

Tangible actions Beauty salons Veterinary careExercise clinics Janitorial services

Restaurants Laundry and dry cleaning

Peoples minds: Intangible assets:

Education Banking

Intangible actions Broadcasting Legal servicesInformation services Accounting

Theaters Securities

Museums Insurance


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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 stationTelephone subscription Police protection

Continuous delivery Electric Utility Lighthouse

of service Banking Public Highway

Long-distance phone calls RestaurantTheater series tickets Pay phone

Discrete Transit pass Toll highwaytransactions Sams Wholesale Club Movie theater

Airline frequent flyer Public transportation


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Strategic Service Classification(Customization and Judgment)

Extent to Which Service Characteristics Are CustomizedExtent to Which PersonnelExercise Judgment in MeetingCustomer Needs High Low

Surgery Preventive health programs

High Taxi services Education (large classes)Gourmet restaurant Family restaurant

Telephone service Public transportationHotel services Spectator sports

Low Retail banking Movie theaterCafeteria Institutional food service


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Strategic Service Classification(Nature of Demand and Supply)

Extent of Demand Fluctuation over Time

Extent 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


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Strategic Service Classification(Method of Service Delivery)

Availability of Service OutletsNature of Interactionbetween Customer and

Service Organization Single site Multiple site

Customer travels toTheater Bus service

service organization Barbershop Fast-food chain

Service provider Taxi Mail deliverytravels to customer Pest control service AAA emergency repairs

Transaction is at Credit card company Broadcast networkarms length Local TV station Telephone company


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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 necessaryDefine standard

Service package

Supporting facility

Communicate Facilitating goods Basis of

by advertising Explicit services selection

Implicit services


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Topics for Discussion

When does collecting information through servicemembership become an invasion of privacy?

What are some management problems associatedwith allowing service employees to exercisejudgement in meeting customer needs?

What factors are important for a manager to consider

when attempting to enhance a service firms image?


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Sample Quiz

Link
http://../fitzsimmons5e%20(D)/Quizzes/quiz001.htmhttp://../fitzsimmons5e%20(D)/Quizzes/quiz001.htm


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Service Strategy


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Learning Objectives

Formulate a strategic service vision.

Discuss the competitive environment of services.

Describe how a service competes using the three

generic service strategies. Discuss the service purchase decision.

Discuss the competitive role of information inservices.

Explain the role of the virtual value chain in serviceinnovation.

Discuss the limits in the use of information.

Categorize a service firm according to its stage ofcompetitiveness.

Conduct a data envelopment analysis (DEA).


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Strategic Service VisionTarget Market Segments

What are common characteristics of important marketsegments?

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?


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Strategic Service VisionService Concept

What are important elements of the service to beprovided, stated in terms of results produced forcustomers?

How are these elements supposed to be perceived by

the target market segment, by the market in general, byemployees, by others?

How do customers perceive the service concept?

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


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Strategic Service VisionOperating 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 competitionin terms of, quality of service, cost profile,productivity, morale/loyalty of servers?


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Strategic Service VisionService Delivery System

What are important features of the service deliverysystem 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, providebarriers to entry by competitors?


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Competitive Environment of Services

Relatively Low Overall Entry Barriers

Economies of Scale Limited

High Transportation Costs Erratic Sales Fluctuations

No Power Dealing with Buyers or

Suppliers Product Substitutions for Service

High Customer Loyalty

Exit Barriers


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Competitive Service Strategies(Overall Cost Leadership)

Seeking Out Low-cost Customers

Standardizing a Custom Service

Reducing the Personal Element in ServiceDelivery (promote self-service)

Reducing Network Costs (hub and spoke)

Taking Service Operations Off-line


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Competitive Service Strategies(Differentiation)

Making the Intangible Tangible (memorable)

Customizing the Standard Product

Reducing Perceived Risk

Giving Attention to Personnel Training

Controlling Quality

Note: Differentiation in service means being unique inbrand image, technology use, features, or reputation forcustomer service.


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Competitive Service Strategies(Focus)

Buyer Group: (e.g. USAA insurance andmilitary officers)

Service Offered: (e.g. Shouldice Hospitaland hernia patients)

Geographic Region: (e.g. Austin CableVision and TV watchers)


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Customer Criteria for Selectinga Service Provider

Availability (24 hour ATM)

Convenience (Site location)

Dependability (On-time performance)

Personalization (Know customers name) Price (Quality surrogate)

Quality (Perceptions important)

Reputation (Word-of-mouth)

Safety (Customer well-being)

Speed (Avoid excessive waiting)


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Service Purchase Decision

Service Qualifier: To be taken seriously a certain levelmust be attained on the competitive dimension, asdefined by other market players. Examples arecleanliness for a fast food restaurant or safe aircraft foran airline.

Service Winner: The competitive dimension used tomake the final choice among competitors. Example isprice.

Service Loser: Failure to deliver at or above theexpected level for a competitive dimension. Examplesare failure to repair auto (dependability), rude treatment(personalization) or late delivery of package (speed).

Competiti e Role of Information


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Competitive Role of Informationin Services

Strategic Focus Competitive Use of Information

On-line

(Real time)

Off-line

(Analysis)

External

(Customer)

Creation of barriers to entry:

Reservation system

Frequent user club

Switching costs

Data base asset:

Selling information

Development of services

Micro-marketing

Internal

(Operations)

Revenue generation:

Yield management

Point of sale Expert systems

Productivity enhancement

Inventory status

Data envelopment

analysis (DEA)


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The Virtual Value Chain

Marketplacevs Marketspace

Creating New Markets Using Information (Gather,Organize, Select, Synthesize, and Distribute)

Three Stage Evolution 1st Stage (Visibility): See physical operations moreeffectively with informationEx. USAA paperlessoperation

2

nd

Stage (Mirroring Capability): Substitute virtualactivities for physicalEx. USAA automate underwriting 3rd Stage (New Customer Relationships): Draw oninformation to deliver value to customer in new ways Ex.USAA event oriented service


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Limits in the Use of Information

Anti-competitive (Barrier to entry)

Fairness (Yield management)

Invasion of Privacy (Micro-marketing)

Data Security (Medical records)

Reliability (Credit report)


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Using Information to CategorizeCustomers

Coding grades customers on how profitable theirbusiness is.

Routing is used by call centers to place

customers in different queues based oncustomer code.

Targeting allows choice customers to have feeswaived and get other hidden discounts.

Sharing data about your transaction history withother firms is a source of revenue.


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Stages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery

Customers patronize service Customers neither seek Customers seek out the firm The companys name is synonymousfirm for reasons other than out nor avoid the firm. on the basis of its sustained with service excellence. Its service

performance. reputation for meeting doesnt just satisfy customers; it

customer expectations delightsthem and thereby expands

customer expectations to levels its

competitors are unable to fulfill.

Operations is reactive, Operations functions in a Operations continually excels, Operations is a quick learner and fast

at best. mediocre, uninspired reinforced by personnel innovator; it masters every step of the

fashion. management and systems service delivery process and provides

that support an intense capabilities that are superior to

customer focus. competitors.

SERVICE QUALITY

Is subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations and

highly variable. expectations; consistent expectations; consistent seeks challenge; improves

on one or two key on multiple dimensions. continuously.

dimensions.


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Stages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery

BACK OFFICECounting room. Contributes to service, plays Is equally valued with front Is proactive, develops its own

an important role in the total office; plays integral role. capabilities, and generates

service, is given attention, opportunities.

but is still a separate role.

CUSTOMER

Unspecified, to be A market segment whose A collection of individuals A source of stimulation, ideas,

satisfied at minimum cost. basic needs are understood. whose variation in needs is and opportunity.

understood.

INTRODUCTION OF NEW TECHNOLOGY

When necessary for When justified by cost When promises to enhance Source of first-mover advantages,

survival, under duress. savings. service. creating ability to do things your

competitors cant do.

WORKFORCE

Negative constraint. Efficient resource; disciplined; Permitted to select among Innovative; creates procedures.

follows procedures. alternative procedures.

FRONT-LINE MANAGEMENT

Controls workers. Controls the process. Listens to customers; coaches Is listened to by top management

and facilitates workers. as a source of new ideas. Mentorsworks to enhance their career.


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Mini case: America West

Read


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America West Airlines Strategy

Target Strategic Advantage

Low cost Uniqueness

EntireMarket

Market Overall cost Differentiation

Segment leadership

Focus


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America West Winning Customers

Service Qualifiers:

Service Winners:

Service Losers:


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America West Strategic Service Vision

Target market segments

Service concept

Operating strategy

Service delivery system


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America West Airlines Positioning

CABIN SERVICE

Full Service

PREFLIGHT SERVICEInconvenient Convenient

No Amenities


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Homework 2


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Paul Maglio


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Next week:

Alan Karp, HP Labs

Technology in Services

Project 1 given

Homework 1 due

lecture 2 - new services development auto saved]

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