Service Management – New Service Development

Univ.-Prof. Dr.-Ing. Wolfgang Maass Chair in Economics – Information and Service Systems (ISS) Saarland University, Saarbrücken, Germany WS 2011/2012 Thursdays, 8 –10 a.m. Room HS 024, B4 1

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 2

New Service Development

•  Starting with service concept and strategy to provide service with features that differentiate it from competition (cf. lecture #2 “Service Strategy”)

•  Design process is never finished

•  2 basic types of service innovation (Chew, 2010) –  Service enhancement for incremental growth –  New growth idea (Anthony et al., 2008), or new

service idea that could become a new growth platform (Laurie et al., 2006)

•  How to develop new services? -- e.g., a)  NSD Process Cycle (Johnson et al., 2000) b)  Service Innovation Process (Thomke, 2003)

(Fitzsimmons & Fitzsimmons, 2011)

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 3

A) NSD Process Cycle

Development

Analysis Design

Full Launch

People

Techno- logy Systems

Product

Tools

Enablers

o  Formulation of new services objective/ strategy

o  Idea generation and screening

o  Concept development and testing

o  Business analysis o  Project authorization

o  Service design and testing

o  Process and system design and testing

o  Marketing program design and testing

o  Personnel training o  Service testing

and pilot run o  Test marketing

o  Full-scale launch o  Post-launch review

(Johnson et al., 2000; Fitzsimmons & Fitzsimmons, 2011)

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 4

Technology as Innovation Driver

•  Technological advances are often basis for service innovation

•  e.g., Amazon: built up a loyalty customer base and gain competitive advantage as a technology first-mover (1995)

•  e.g., mobiles by Apple combined with app store represent platform for dozens of new services

Source  of  technology   Service  example   Service  industry  impact  

Power/energy   Nuclear  energy   Less  dependence  on  fossil  fuel  

Materials   Synthe:c  engine  oil   Fewer  oil  changes  

Informa:on   eCommerce   Increase  (local)  market  to  worldwide  market  

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 5

B) Service Innovation Process

•  Service innovation process consists of five phases (designed for new innovations where success is less certain)

(Thomke, 2003)

(1)  Evaluate ideas – Conceive, assess, prioritize ideas from internal and external sources

(2)  Plan and design – Assign design needs, complete design, build rollout plan

(3)  Implement – Develop test plan, implement idea

(4)  Test – Monitor performance of idea, report results of fast feedback by market, improve process in a stable operating environment

(5)  Recommend – Complete, review and approve, communicate recommendation

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 6

Service Design Elements

•  Service design elements -- creating a consistent service offering

•  Structural design elements: a.  Delivery system – process structure, service

blueprint, strategic positioning

b.  Facility Design – servicescape, layout

c.  Location – geographic demand, site selection, location strategy

d.  Capacity planning – strategic role, queuing models

(Fitzsimmons & Fitzsimmons, 2011)

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 7

Service Design Elements

•  Service design elements -- creating a consistent service offering

•  Structural design elements: a.  Delivery system – process structure, service

blueprint, strategic positioning

b.  Facility Design – servicescape, layout

c.  Location – geographic demand, site selection, location strategy

d.  Capacity planning – strategic role, queuing models

Example: Hairdresser

Co-production of customers; drying hair themselves

Modern style; lounge style with coffee in waiting area

Located in large malls

Web-based booking system to choose date, service and employee

(Fitzsimmons & Fitzsimmons, 2011)

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 8

Service Design Elements

•  Managerial design elements: a.  Information – technology, scalability, use of

Internet

b.  Quality – measurement, design quality, recovery, tools

c.  Service encounter – encounter triad, culture, supply relationships, outsourcing

d.  Managing capacity and demand – strategies, yield management, queue management

(Fitzsimmons & Fitzsimmons, 2011)

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 9

Service Design Elements

•  Managerial design elements: a.  Information – technology, scalability, use of

Internet

b.  Quality – measurement, design quality, recovery, tools

c.  Service encounter – encounter triad, culture, supply relationships, outsourcing

d.  Managing capacity and demand – strategies, yield management, queue management

Example: Hairdresser

Free cutting of fringe and repairing of cuts

Family-type atmosphere

Walk-in customers – “Take a number”

Looking up current number of customers in store on web page

(Fitzsimmons & Fitzsimmons, 2011)

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 10

Service Blue Printing

•  “The development of a new service is usually characterized by trial and error. Developers translate a subjective description of a need into an operational concept that may bear only a remote resemblance to the original idea. No one systematically quantifies the process or devises tests to ensure that the service is complete, rational, and fulfills the original need objectively.” (Shostack, 1984, p. 133)

(Fitzsimmons & Fitzsimmons, 2011)

•  Service blueprint - capturing service design in a visual diagram (like building)

•  “A service blueprint allows a company to explore all the issues inherent in creating or managing a service.” (Shostack, 1984, p. 135)

•  “Service blueprinting, which started as an entirely manual process, has been automated by companies to provide “living blueprints” accessible to key parties online […].” (Bitner et al., 2010, p. 210).

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 11

Service Blue Printing

(Shostack, 1984, p. 135)

How to design a service blueprint? (1)  Identifying processes - breakdown of complex processes into steps; identification

of parts of service not seen by customer, e.g. purchasing of supplies

(2)  Isolating fail points – build (fail-safe) sub processes to correct possible errors

(3)  Establishing time frame – consideration of execution time of service as major cost determinant; calculating maximum of deviation

(4)  Analyzing profitability – quantifying costs of delay; establishment of time-of-service-execution standard to measure performance / control uniformity and quality; serves as model for distribution of service

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 12

Characteristics of Service Processes

•  Complexity – number of steps and sequences in process

•  Divergence – amount of discretion or freedom that server has to customize the service

•  Object of service process – goods, information, people

•  Type of customer contact – no contact, indirect, direct

(Fitzsimmons & Fitzsimmons, 2011)

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 13

Brainteaser

•  The taxonomy of services processes (Wemmerlöv, 1990) categorizes services according to the level of divergence, the degree of customer contact as well as the type of object of the service process.

•  Fill out the table with exemplary service processes.

•  Discuss it with your neighbor!

10 Minutes

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 14

At Your Own Risk…

Divergence •  Leads to uniformity that tends to reduce

costs, improve productivity •  Indicates shift to “economy of

scale” (volume-oriented) •  + increases in reliability; more quality and

service availability

•  - Conformity and inflexibility, limiting customization options

Divergence •  Greater customization and flexibility tend

to higher prices •  Indicates niche positioning strategy •  + prestige, customization, personalization •  - service difficult to manage, control and

distribute; customers may not be willing to pay higher prices

Complexity •  Expanding service line •  Greater penetration in market •  + increased efficiency by maximizing

revenue generated from each customer

•  - confusing customers; reduction of overall service quality; danger of specialized competitors

Complexity •  Steps of functions are dropped •  Specialization strategy •  + resources focused on narrower service

offering; easier distribution and control; expert position

•  - perceived as “stripped down”; danger of full-service alternatives

(Shostack, 1987)

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 15

How to Design a Service System?

•  Service experience = theater; service design similar to staging a production (Grove & Fisk, 1992)

•  Experience economy in which service providers compete on the design of customer experiences (Pine & Gilmore, 1999)

(Spohrer & Maglio, 2010; Fitzsimmons & Fitzsimmons, 2011)

•  Diverse approaches to design the service system a)  Production-line approach b)   Customer as co-producer

c)  Customer contact approach – Isolating technical core of low-contact operations from high-contact operations and design both separately (Chase, 2010); line of visibility; appropriate for processing-of-goods category

d)  Information empowerment – empowerment of employees and customers through IT

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 16

A) Production-Line Approach

•  Delivery of routine services provided in controlled environments to ensure consistent quality and efficiency

•  Competitive advantage with cost-leadership strategy

•  Limited discretionary action of personnel – identical service at any location

•  Division of labor – total job is broken into simple tasks •  Substitution of technology for people – e.g., ATM •  Service standardization – limited service options

guarantee predictability and preplanning; routine processes; helps to ensure service quality

(Fitzsimmons & Fitzsimmons, 2011)

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 17

B) Customer as Co-Producer

•  Customer represents productive labor at the moment it is needed – opportunity to increase productivity by shifting some activities to customer (Edvardsson et al., 2010)

•  Increasing degree of customization through co-creation – open innovation (van Hippel, 1986)

•  Cost leadership strategy with some customization

•  Self-Service – customer receives benefits for her labor in form of convenience

•  Smoothing service demand – smoothing variations in service demand; allows uniform utilization of capacity (e.g., midweek discounts)

•  Customer-generated content (Fitzsimmons & Fitzsimmons, 2011)

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 18

Literature

Books: •  Fitzsimmons, J. A. & Fitzsimmons, M. J. (2011), Service Management - Operations, Strategy, Information

Technology, McGraw - Hill. •  Pine, B. J.and Gilmore, J. H. (1999), The Experience Economy: Work is Theatre and Every Business a

Stage, Harvard Business School Press, Boston, MA.

Papers: •  Anthony, S. D.; Johnson, M. W. & Sinfield, J. V. (2008), 'Institutionalizing Innovation', MIT Sloan

Management Review 49(2), 45-53. •  Bitner, M. J.; Ostrom, A. L. & Morgan, F. N. (2008), 'Service Blueprinting: A Practical Technique for Service

Innovation', California Management Review, 66-94. •  Bitner, M. J.; Zeithaml, V. A. & Gremler, D. D. (2010), Technology’s Impact on the Gaps Model of Service

Quality'Handbook of Service Science', Maglio, Paul P. and Kieliszewski, Cheryl A. and Spohrer, James C. •  Chase, R. B. (2010), Revisiting “Where Does the Customer Fit in a Service Operation?” - Background and

Future Development of Contact Theory'Handbook of Service Science', Maglio, Paul P. and Kieliszewski, Cheryl A. and Spohrer, James C.

•  Chew, E. K. (2010), A Reflection From Telecommunications Service Perspective'Handbook of Service Science', Maglio, Paul P. and Kieliszewski, Cheryl A. and Spohrer, James C.

•  Edvardsson, B.; Enquist, B. & Johnston, R. (2005), 'Cocreating customer value through hyperreality in the prepurchase service experience', Journal of Service Research 8(2), 149-161.

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

09.11.11 Slide 19

Literature

•  Edvardsson, B.; Gustafsson, A.; Kristensson, P. & Witell, L. (2010), Service Innovation and Customer Co-Development'Handbook of Service Science', Maglio, Paul P. and Kieliszewski, Cheryl A. and Spohrer, James C.

•  Grove, S. J. & Fisk, R. P. (1992), 'The service experience as theater', Advances in Consumer Research 19, 455-461.

•  Hippel, E. v. (1986), 'Lead Users. A Source of novel product concepts.', Management Science 32, 791-805. •  Johnson, S.; Menor, L.; Roth, A. & Chase, R. (2000), A critical evaluation of the new services development

process: integrating service innovation and service design, in J.A. Fitzsimmons & M.J. Fitzsimmons, ed.,'New Service Development', Sage Publications.

•  Laurie, D. L.; Doz, Y. L. & Sheer, C. P. (2006), 'Creating new Growth Platforms', Harvard Business Review, 80 – 90.

•  Shostack, G. L. (1987), 'Service positioning through structural change', Journal of Marketing 51(1), 34—43. •  Shostack, G. L. (1984), 'Designing services that deliver', Harvard Business Review 62(1), 133—139. •  Spohrer, J. C. & Maglio, P. P. (2010), Toward a Science of Service Systems - Value and Symbols'Handbook

of Service Science', Maglio, Paul P. and Kieliszewski, Cheryl A. and Spohrer, James C. •  Thomke, S. (2003), 'R&D Comes to Services – Bank of America’s Pathbreaking Experiments', Harvard

Business Review, 71 – 79. •  Wemmerlöv, U. (1990), 'A Taxonomy for Service Processes and its Implications for System Design',

International Journal of Service Industry Management 1(3), 20--40.

Univ.-Prof. Dr.-Ing. Wolfgang Maass  

Univ.-Prof. Dr.-Ing. Wolfgang Maass Chair in Information and Service Systems Saarland University, Germany