Chapter – 4

New Service Development

4

Service Management (5e)

Operations, Strategy, Information Technology

By

Fitzsimmons and Fitzsimmons

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Discuss the new service development process. Prepare a blueprint for a service operation. Describe a service process using the dimensions of

divergence and complexity. Use the taxonomy of service processes to classify a

service operation. Compare and contrast the generic approaches to

service system design.

Learning ObjectivesLearning Objectives

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Levels of Service InnovationLevels of Service Innovation

Radical InnovationsMajor Innovation:

new service driven by information and computer based technology

Wells Fargo Internet banking launched in May 1995

Start-up Business: new service for existing market

New Services for the Market Presently Served: new services to customers of an organization

Bank branches in Supermarkets

Incremental InnovationsIncremental Innovations

Service Line Extensions: augmentation of existing service line, such as adding new menu

items, new routes

Exclusive lounge at Airports for first class passengers for some airlines

Service Improvements: changes in features of currently offered service

Delta Airlines use of ATM-like kiosks to distribute boarding passes to passengers

Style Changes: modest visible changes in appearances

Some funeral homes now arrange for celebration of life instead of mourn death

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Technology Driven Service InnovationTechnology Driven Service Innovation

Power/energy - International flights with jet aircraft

Physical design - Enclosed sports stadiums, Hotel Atrium

Materials - Astroturf

Methods - JIT and TQM

Information - E-commerce using the Internet

Sources of New ServicesSources of New Services

Customer suggestions

Frontline employees

Mining customer database

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People

Technology Systems

Product

Full Launch Development

Design Analysis

Org

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Con

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Tools

Enablers

• Formulation of new services objective / strategy• Idea generation and screening• Concept development and testing

• Business analysis• Project authorization

• Full-scale launch• Post-launch review

• Service design and testing• Process and system design and testing• Marketing program design and testing• Personnel training• Service testing and pilot run• Test marketing

New Service Development CycleNew Service Development Cycle

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Service Design Elements1. Structural

Service Design Elements1. Structural

Delivery system Front and back office Automation Customer participation

Facility design Size Aesthetics Layout

Location Customer demographics Single versus multiple sites Competition Site characteristics

Capacity planning Managing queues Number of servers Accomodating average or peak demand

Service Design Elements2. Managerial

Service Design Elements2. Managerial

Service encounter Service culture Motivation Selection and training Employee empowerment

Quality Measurement Monitoring method Expectations versus perceptions Service guarantee

Managing capacity and demand Strategies for altering demand and controlling supply Queue management

Information Competitive resources Data collection

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Service Blueprint of Luxury HotelService Blueprint of Luxury Hotel

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Degree of Complexity Measured by the number of steps in the service blueprint. For

example a clinic is less complex than a general hospital.

Degree of Divergence Amount of discretion permitted the server to customize the

service. For example the activities of an attorney contrasted with those of a paralegal.

Figure 4.3 (pp 85) Allows us to see the market positioning of a service based on

degree of complexity and degree of divergence allowed

Strategic Positioning Through Process Structure

Strategic Positioning Through Process Structure

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LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE

No ReservationsSelf-seating. Menu on Blackboard

EliminateCustomer Fills Out Form

Pre-prepared: No Choice

Limit to Four Choices

Sundae Bar: Self-service

Coffee, Tea, Milk onlyServe Salad & Entree Together:

Bill and Beverage Together

Cash only: Pay when Leaving

TAKE RESERVATIONSEAT GUESTS, GIVE MENUSSERVE WATER AND BREAD

TAKE ORDERSPREPARE ORDERS

Salad (4 choices)

Entree (15 choices)

Dessert (6 choices)

Beverage (6 choices)SERVE ORDERS

COLLECT PAYMENT

Specific Table SelectionRecite Menu: Describe Entrees & SpecialsAssortment of Hot Breads and Hors D’oeuvresAt table. Taken Personally by Maltre d’

Individually Prepared at table

Expand to 20 Choices: Add Flaming Dishes;Bone Fish at Table; Prepare Sauces at TableExpand to 12 Choices

Add Exotic Coffees; Sherbet betweenCourses; Hand Grind Pepper

Choice of Payment. Including House Accounts:Serve Mints

Structural Alternatives for a RestaurantTable 4.3 (pp 85)

Structural Alternatives for a RestaurantTable 4.3 (pp 85)

Taxonomy for Service Process DesignTaxonomy for Service Process Design

Service processes can be classified using the concept of1. Divergence

2. the object toward which service activity is directed

3. Degree of customer contact

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1. Degree of divergence1. Degree of divergence

Low divergence – standardized service with high volume• Tasks are routine• Relatively low level of technical skills required• Production-line approach, example, McDonalds

High divergence – customized services• More technical and analytical skills required• More flexibility required• More capacity required

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2. Object of the Service Process2. Object of the Service Process

Working on goods of the customer, ex. Auto repair Property must be secured from damage or loss

Services where the provider provides facilitating goods ex restaurant Appropriate stock levels and the quality of these facilitating goods

becomes a concern Processing information

Done in back office, ex. check processing at a bank Providing information over phone , ex. Phone banking

Processing People, ex. Haircut or surgical operation High interpersonal skills required as well as technical skills

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3. Type of Customer Contact3. Type of Customer Contact

Decision on level of customer contact will decide the type of training for employees and the design of the facilityIndirect via electronic media – no need for service

provider at the time of service delivery

Indirect via phone – need for service provider at the time of delivery and need for employee interpersonal skills

Customer is physically present for part or full service – need for interpersonal skills and also careful planning of service layout

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Low divergence (standardized service)

High divergence (customized service)

Processing of

goods Processing Information

Processing of people

Processing of goods

Processing Information

Processing of people

Dry Cleaning Check processing

Auto repair Computer programming

No Customer Contact

Restocking a vending machine

Billing for a credit card

Tailoring a suit Designing a building

Indirect Customer Contact

Ordering groceries from a home computer

Supervision of a landing by an air controller

No customer service worker interaction(self- service)

Operating a vending machine

Withdrawing cash from an ATM

Operating an elevator

Sampling food at a buffet dinner

Documenting medical history

Driving a rental car

Assembling premade furniture

Giving a lecture Riding an escalator

Bagging of groceries

Searching for information in a library

Using a health club facility

Customer service worker interaction

Food service in a restaurant

Handling routine bank transactions

Providing public transportation

Home carpet cleaning

Portrait painting

Haircutting

Direct Customer Contact

Hand car washing

Providing mass vaccination

Landscaping service

Counseling Performing a surgical operation

Taxonomy of Service ProcessesTable 4.4 (pp. 86)

Taxonomy of Service ProcessesTable 4.4 (pp. 86)

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1. Production-line

2. Customer as Coproducer

3. Customer Contact

4. Information Empowerment

Generic Approaches to Service DesignGeneric Approaches to Service Design

1. Production-Line Approach1. Production-Line Approach

Characteristics Routine and simple services High standardization Low customer contact

Limited discretionary action of personnel – to get consistency in service performance

Division of Labor – total job is broken into groups of simple tasks

Substitution of technology for people – example ATM machines

Service standardization – limited service options creates opportunities for predictability and preplanning

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2. Customer as Co-Producer2. Customer as Co-Producer

Characteristics For most services, the customer is present when the service is being performed We can use the customer as a productive worker – through proper design of the

service Either compensate the customer for their service or design in such a way that

he/she does not feel as a co-producer

Self Service – E-tickets over the Internet provide convenience Smoothing Service Demand – will allow better use of capacity,

which is time-perishable To implement demand-smoothing strategy, customers must

participate, adjusting the time of their demand to match availability of the service. Appointments, reservations, price incentives

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3. Customer-Contact Approach3. Customer-Contact Approach

Manufacturing is a controlled environment focused on maximizing productivity

and capacity utilization; inventory to decouple production from customer demand

Services When low contact – then run them as manufacturing in back-

office, achieving high capacity utilization and economies of scale

When high-contact – the quality is determined by customers’ experience – both the process and the outcome are important

Separate different components of service into high and low contact areas to bring efficiency

Considerations that will impact high and low contact are given in table 4.5 (pp 93)

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4. Information Empowerment4. Information Empowerment

Employee empowerment – faster and accurate Record keeping customer names Supplier relationship Communication with other firms All aspects of an operation can be integrated (ERP systems)

Customer empowerment Customers can use Internet to educate themselves

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Customer ValueCustomer Value

Results produced for the customer It must satisfy the need for which it was purchased

Process quality Since customer is a part of the process of service delivery,

therefore improvement in service quality will be appreciated by the customer

Price to the customer Greater consistency in service quality should lower cost – because

that allows greater alignment between customer perceptions and expectations; resulting in lower price being offered to customer

Cost of acquiring the service Total cost of acquiring the service is important to customers

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Customer Value EquationCustomer Value Equation

erviceuiringtheSCostsofAcqice

tyocessQualioducedsultsValue

Pr

PrPrRe

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Discussion QuestionsDiscussion Questions

What are the limits in the production-line approach to service?

Give an example of a service in which isolation of the technical core would be inappropriate.

What are some drawbacks of customer participation in the service delivery process?

What ethical issues are raised in the promotion of sales during a service transaction?