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SO 20-09-2015

1

Week 1

Vinay Kumar Kalakbandi

Assistant Professor

Operations & Systems Area

Indian Institute of Management Raipur

Service Operations (SO) PGPWE 2016-17

10/3/2016 Vinay Kalakbandi 1

This week on Service Operations…

• Introductions

• Course overview

• Service definitions, characteristics, classifications

• Service economy


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Introductions

• Introduction

• Work ex, internship

• Motivation to take this course


Course Objective

To enable participants understand, appreciate and

successfully incorporate operations management

principles and insights into the management of

services


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Teaching philosophy

This course is not a spa, this is a Gym

Warm-up, Lift weights, do cardio

Read, Analyse, Participate


Course management

• Course website where details of all readings,

PPTs could be accessed anytime.

– http://vkteaching.weebly.com/

• Textbook and Course pack

– Shall be provided by the PGP office shortly


http://vkteaching.weebly.com/

http://vkteaching.weebly.com/

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Evaluation

• 25% Mid Term; 25% End Term

• 30% In-course activities

– Class participation – Online and Offline

– Team/Individual assignments

– In-class team/individual activities

• 20% Team Project

– Design a new service

– Analyse an existing service: with field inputs

– Compare two existing services


Flow of the course

• Service definitions, classification, importance to economy

• Service Strategy, Design – Strategic Service Vision, customer value equation

– Service Blueprinting, Servicescape design

• Managing Capacity and Demand – Queuing theory

– Revenue Management

• Managing Service quality – Statistical Quality Control

– SERVQUAL

• Managing Employee and Customer behavior

• Services in the social sector


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Team formation

• Form teams

• Name your teams

• Always sit as teams


Our First team activity

• Consider the given list of companies

• Which of these are service firms and which of

them are product firms?


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Service product continuum


The Service – Product Continuum

Materials, Assets, Products… Services, People, Interactions…

Passenger Cars, Machine Tools

Professional Consulting, Legal Services

Health Care System (Hospitals)

Restaurants, Fitness Centres

Logistics, Tourism, Travel and Entertainment Sectors

Facilities Maintenance, Turnkey Project Execution …

Product Domination Service Domination


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Team activity

• Order the firms you have been provided them in

a service product continuum

• Add one more service organization to the list

and place it on the service product continuum

• As a class, merge all your lists.


Point to ponder…

What are the key characteristics of services that

make them different from goods?


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Distinctive Characteristics of Service

Operations

• Intangibility

• Perishability

• Heterogeneity

• Simultaneity

• Transferability

• Cultural Specificity



Operations

• Overflowing french fries; Elevator music

• Hum hain na!; Delivering value!

• Services can deal with psychology of consumers – More degrees of freedom to create desirable services

• Appropriability: Patents not easy

• High Customer Loyalty; Exit Barriers

• Services are Intangible – Need for development of capable infrastructure

– Materialization of the service necessary • Services can be conspicuous by their absence


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Operations

• Off-season; weekday discount?

• Usage of inventory to hedge uncertainty not possible

• Usage of excess capacity is the usual practice

• Airline with empty seats; vacant hotel room

• Sometimes too busy/sometimes too idle!

• Services are Perishable – Necessary to smoothen the demand

• Schedule preventive maintenance in slack time

• Special tariffs for slack times



Operations

• Mobile phone service centres

• Human involvement leads to high amount of

randomness

• Services are characterized by Heterogeneity

– Maintenance of consistency important


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Operations

• What’s common between McDonald’s, ICICI

bank and railway reservation counter?

• Token system; Snake queues; tellers with computer

terminals

• Diverse services tend to have more in common

with each other than diverse goods

• Services are Transferable

– Managers can utilize insights from one service to the

other!



Operations • More than 19000 Starbucks in USA

• SBI has 14816 branches in India

• 16000 IOCL petrol pumps

• Serviced are produced and consumed at the same time

• Error corrections might be difficult

• Need for physical presence of the customer/assets – Loss of economies of scale

• Difficulty of testing service prototypes

• Product substitutions

• Services are characterized by simultaneity – Franchise models; consistency of approach


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Service definitions

• A service is an activity or series of activities of more or less intangible nature that normally, but not necessarily, take place in interactions between customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems

– Christian Gronroos, Service Mangement and Marketing, Lexington, Mass: Lexington Books, 1990, p. 27)


Service definitions

• Most authorities consider the services sector to

include all economic activities whose output is

not a physical product or constriction, is

generally consumed at the time it is produced

and provides added value in forms (such as

convenience, amusement, timeliness, comfort, or

health) that are essentially intangible concerns

of the first purchaser.

– Quinn et al 1987


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Point to Ponder…

Not all services are created equal!

Different services have different challenges

Different services have different ways to face

different challenges


Classifying by configuration

• B2C services

• B2B services

• Government services

• Not for profit services

• Internal services

• C2C Services!!


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Nature of the service act

Who or what is the direct recipient of the

service?

What is the nature of

the service act?

People Things

Tangible Actions Services directed at

people’s bodies

-restaurants,

haircutting, beauty

salons

Services directed at

goods and other

physical possessions

-freight transport,

laundry/dry cleaning

Intangible Actions Services directed at

people’s mind

-education, theatres

Services direct at

intangible assets

-banking, legal

services

Lovelock 1983 10/3/2016 Vinay Kalakbandi 25

Managerial implications

• Does the customer need to be physically present?

– 1) Throughout the service delivery?

– 2) Only to initiate / terminate the service transaction?

– 3) Not at all

– Customer satisfaction will be influenced by interactions they have with personnel, nature of facilities, characteristic of other customers, questions of location and schedule convenience

• Managers of service organizations may be able to identify opportunities for alternative, more convenient forms of service delivery- MOOCs!


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Relationship with customers

Lovelock 1983

Type of relationship between the

service organization and the customer

Nature of service

delivery

“Membership”

relationship

No formal

relationship

Continuous

delivery system

Eg) college

enrollment,

insurance, banking

Eg) police

protection, radio

station, public

highway

Discrete

Transactions

Eg) transit pass,

long-distance phone

calls

Eg) pay phone, car

rental, restaurant,

movie theater



• Company knows who its current customers are, their addresses, their preferences, their opinions on the service provided,

• Valuable for segmentation purposes & targeted marketing

• May be offered discount rates in return for continuous patronage

• Usually result in customer loyalty to a particular provider. Ex) Rewards cards, Costco membership

• Helps ensure repeat business

• Task = build sales and revenues through membership but avoid required membership and freezing out customers. Ex) Best Buy w/ Reward Zone

• Allows for better decisions in regard to pricing


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Customization and Judgment

Lovelock 1983

Extent to which service characteristics

are customized

Extent to which customer

contact personnel exercise

judgment in meeting

individual customer needs

High Low

High Eg) legal services,

taxi service, real

estate agents,

plumber

Eg) preventative

health programs,

education (large

class)

Low Eg) hotel service,

telephone service

Eg) public

transportation, fast

food restaurants,

movie theaters



• Customization is not necessarily important for success – sometimes the image of customization is enough. – Many people share the same experience.

– People share the same service facility but still have some custom treatment. Ex) airlines use your name

• Customers like to know in advance what they are buying – can divide into two segments (diagnosis and

implementation) to easy customer worries • Marketing focus on process of client-provider interactions. Ex)

statement of qualifications


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Nature of Demand and Supply

Lovelock 1983

Extent of demand fluctuations over time

Extent to which

supply is

constrained

Wide Narrow

Peak demand

can usually be

met without a

major delay

Could use increases in demand

outside of peak periods

Ex) electricity, telephone, natural

gas

Must decide whether to seek

cont. growth in demand &

capacity or maintain status quo

Ex) banking, insurance, legal

services

Peak demand

regularly

exceeds

capacity

Must try to smooth demand to

match capacity- must both

stimulate and discourage

demand

Ex) theatres, hotels/motels,

restaurants

A growing organization that may

need temporary demarketing

until capacity can be reach to

meet current needs

Ex) services similar to those in

above field but with insufficient

capacity



• Managing demand in services because fluctuations can be sharp and there is no buffer of inventory between supply and demand

• What is the typical cycle period for these demand fluctuations? – Predictable- demand varies by hour of the day, day of

week/month, season of year – Random- no apparent pattern to demand fluctuations

• What are the underlying causes of these demand fluctuations? – Customer habits or preferences- could marketing change these? – Actions by third parties- employers set working hrs. hence

marking efforts might be directed at those employers – Nonforcestable events- weather conditions, health symptoms


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• Smooth out ups and downs of demand:

– Decrease demand: • Encourage customers to change their plans voluntarily- Offer

discounts or added product value during times of low demand

• Ration demand through reservations or a queuing system

– Increase demand: • New business development efforts should be targeted at

prospective customers with a counter cyclical demand pattern. Ex) accounting firm has lots of business at the end of the year may find new business for the bulk of the year when it has relatively no business


Method of Service Delivery

Lovelock 1983

Availability of service outlets

Nature of interaction

between customer and

service organization

Single Site Multiple Site

Customer goes to

service organization

Ex) theatre, barbershop Ex) bus service, fast food

chain

Service organization

comes to customer

Ex) lawn care service,

pest control service, taxi

Ex) mail deliver, AAA

emergency repairs

Customer and service

organization transact at

arms length (mail or e-

communications)

Ex) credit card company,

local t.v. station

Ex) broadcast network,

telephone company


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Service Process classification

Degree of interaction and customization

Degree of labour

intensity

Low High

Low Service Factory

Airlines

Trucking

Hotels

Resorts & recreation

Service Shop

Hospitals

Auto repair

High Mass Service

Retailing

Wholesaling

Schools

Retail banking

Professional service

Doctors

Lawyers

Accountants

Architects

Schmenner 1986 10/3/2016 Vinay Kalakbandi 36


• 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, developing methods and controls

– Employee welfare

– Scheduling the workforce

– Controlling of far-flung geographic locations

– Managing growth


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Managerial Implications

• Low interaction and customization – faces a stiff marketing challenge

– Making the service warm

– Attention to physical surroundings

– Managing fairly rigid hierarchy with need for standard operations procedures

• Higher degree of interaction and customization – Fighting costs increases

– Maintaining quality

– Responding to consumer intervention

– Managing advancement of people delivering service

– Managing flat hierarchy with loose subordinate – superior relationship

– Gaining employee loyalty


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