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Chapter 04New Service Development
McGraw-Hill/IrwinService Management: Operations, Strategy, and Information Technology, 6e
Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Learning Objectives Describe the fundamental characteristics of service innovation. Describe the four structural and four managerial elements of
service design. Describe the components of the customer value equation. Explain and differentiate what is meant by the divergence and the
complexity of a service process. Describe the sequence of states and the enablers of the new
service development process. Prepare a blueprint for a service operation. Explain the difference between direct and indirect customer
contact. Compare and contrast the four approaches to service system
design: production-line, customer as coproducer, and information empowerment.
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Introduction Designing a service delivery system is a
creative process. It begins with a service concept and
strategy to provide a service with feature that differentiate it from the competition.
Various alternatives for achieving these objectives must be identified and analyzed before any decisions can be made.
Introduction (2) Designing a service system
involves issues such as location, facility design and layout for effective customer and work flow, procedures and job definitions for service providers, masures to ensure quality, extent of customer involvement, equipment selection, and adequate service capacity.
Introduction (3)
The design process is never finished; once the service becomes operational, modifications in the delivery system are introduced as conditions warrant.
Innovation in Services Based on the NSF definitions, service
innovation is the output of applied research and develpment efforts which has one of the following goals:
Basic Research: Pursue a planned search for new knowledge regardless of possible application.
Applied Research: Apply existing knowledge to problems in creation of new service.
Development: Apply knowledge to problems to improve a current service.
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Challenges for Service Innovation
Ability to protect intellectual and property technologies.(The transperancy of service system are make immitation simpler, and pattents are difficult to obtain)
Incremental nature of innovation. (Because customers participate in service systems, innovation tends to be evolutionary rather than radical to allow for acceptance)
Degree of integration required. (among people,products,and technology)
Ability to build prototypes or conduct tests in a controlled environment.
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Levels of Service Innovation
Radical Innovations Major Innovation: new service that customers did not
know they needed. Start-up Business: new service for underserved market. New Services for the Market Presently Served: new
services to customers of an organization.Incremental Innovations
Service Line Extensions: augmentation of existing service line (e.g. new menu items).
Service Improvements: changes in service delivery process (e.g. self-service boarding kiosk).
Style Changes: modest visible changes in appearances.
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New Service Development Ideas for new service innovations can originate from many sources. Customers can offer suggestions (e.g., menu
additions at a restaurant) Frontline employees can be trained to listen to
customers’concerns Customer databases can be mined for possible
service extentions (e.g., additional financial services)
These ideas form the input to the development stage of the new service development (NCD) cycle shown in the following figure
New Service Development Cycle
People
Technology Systems
Product
Full Launch Development
Design Analysis
Org
aniz
atio
nal
Con
text Team
s
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
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New Service Development (2)
Technological advances often are the basis for radical service innovation.
The following table presents examples and industry impact of technology-driven service innovations from various sources
Technology-Driven Service Innovations
Source of Technology
Service Example Service Industry Impact
Power/energy Jet aircraft Nuclear energy
International flight is feasibleLess dependence on fossil fuel
Facility design Hotel atriumEnclosed sports stadium
Feeling of grandeur/spaciousnessYear-around use
Materials Photochromic glassSynthetic engine oil
Energy conservationFewer oil changes
Methods Just-in-time (JIT)Six Sigma
Reduce supply-chain inventoriesInstitutionalize quality effort
Information E-commerceSatellite TV
Increase market to world-wideAlternative to cable TV
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Service Design Elements
Design Elements Topics
Structural
Delivery system Process structure, service blueprint, strategic positioning
Facility design Servicescapes, architecture, process flows, layout
Location Geographic demand, site selection, location strategy
Capacity planning Strategic role, queuing models, planning criteria
Managerial
Information Technology, scalability, use of Internet
Quality Measurement, design quality, recovery, tools, six-sigma
Service encounter Encounter triad, culture, supply relationships, outsourcing
Managing Capacity and Demand
Strategies, yield management, queue management
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Customer Value Equation (1)
To ensure acceptance of a new service innovation, the design process should take a customer-centric view of what is important
The value of a service from a customer’s perspective can be captured in the following equation
Customer Value Equation (2)
erviceuiringtheSCostsofAcqice
tyocessQualioducedsultsValue
Pr
PrPrRe
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Strategic Positioning Through Process Structure
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 are highly divergent, because interaction with the clients requires judgment, discretion, and situational adaptation
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Structural Alternatives for a Restaurant
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 ORDERS
Salad Bar
Entree (6 choices)
Dessert (6 choices)
Beverage (6 choices)SERVE ORDERS
CASH OR CREDIT CARD
Specific Table SelectionRecite Menu: Describe Entrees & SpecialsAssortment of Hot Breads and Hors D’oeuvresAt table. Taken Personally by Maltre d’
Salad (4 choices)
Expand to 10 Choices: Add Flaming Dishes;Bone Fish at TableExpand to 12 Choices
Add Exotic Coffees; Wine list, LiqueursSeparate-courses; Hand Grind Pepper
Choice of Payment. Including House Accounts:Serve Mints
LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE
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Service Blueprinting When a building is developed the design
is captured on architectural drawings called blueprints
These blueprints show what the product should look like and all the specifications needed for its manufacture.
G.L.Shostack has proposed that a service delivery system also can be captured in a visual diagram (i.e., a service blueprint) and used in a similar menner for the design of services
Service Blueprint of Luxury
Hotel (1)
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Service Blueprint of Luxury Hotel (2) At the top we find the “physical evidence”
that customers will see (e.g., hotel exterior, room decor) and experience (waiting for check-in, taking a bath, watching TV)
Activities in the first row above the “line of interaction” are customer-initiated steps, choices, and interactions the customer performs in the process of purchasing, consuming, and evaluating the service
Service Blueprint of Luxury Hotel (3) Any vertical flow line crossing the “line
of interaction”depicts a direct contact between the customer and organization (i.e., service encounter)
Paralleling the customer actions are two areas of contact-employee actions. Above the “line of visibility” are actions in full view of the customer and thus “onstage” (e.g., checking in)
Service Blueprint of Luxury Hotel (4)
Below the line of visibility are activities that are “backstage” and not seen by the customer, such as taking food orders over the telephone.
Below the “line of internal interaction” we find the support processes, such as a reservation information system and kitchen.
Service Blueprint of Luxury Hotel (5)
The position of”line of visibility” in a service blueprint can immediately signal the level of involvment of the customer in the service delivery proces. (e.g., the line of visibility is relatively high for a gourmet restaurant compered to that for a fast-food restaurant.
Service Blueprint of Luxury Hotel (6) In summary, a blueprint is a precise
definition of the service delivery system that allows the management to test the service concept on paper before any final commitments are made.
The blueprint also facilitates problem solving and creative thinking by identifying potential failure and highlighting opportunities to enhance customers perception of service.
Taxonomy of Service Processes (1)
Service processes can be classifed based on the following criteria:
Degree of divergence, Object of the service process Degree of consumer contact.
Taxonomy of Service Processes (2) In Table 4.5, services are broadly divided
into low divergence (i.e., standardized services) and high divergence (i.e., customized service)
Within these two categories, the object of the service is devided as goods, information, or people
The degree of customer contact ranges from no contact to indirect contact to direct contact and is divided further into self-service and personal interaction with the service worker
Taxonomy of Service Processes (3)
Low divergence High divergence (standardized service) (customized service) Processing Processing Processing Processing Processing Processing of goods Information of people of goods Information of people Dry Check Auto repair Computer No Cleaning processing Tailoring a programming Customer Restocking Billing for a suit Designing a Contact a vending credit card building machine Ordering Supervision Indirect groceries of a landing customer from a home by an air contact computer controller No Operating Withdrawing Operating Sampling Documenting Driving a customer- a vending cash from an elevator food at a medical rental car service machine an ATM Riding an buffet dinner history Using a worker Assembling escalator Bagging of health club interaction premade groceries Searching for facility (self- furniture informationDirect service) in a libraryCustomer Customer Food Giving a Providing Home Portrait HaircuttingContact service service in a lecture public carpet painting Performing worker restaurant Handling transit cleaning Counseling a surgical interaction Hand car routine bank Mass Landscaping operation washing transactions vaccination service
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Degree of Divergence Standardized service is designed for
high volumes with a narrowly defined and focused service. The task is routine and require a workforce with relatively low levels of technical skill
Because of repetitive nature of the service, opportunities to substitute automation for labor abound.
It is also called as the production-line approach to a service design
Degree of Divergence (2) For customized services more flexibility
and judgement are required to perform the service task
In addition, more information is exchanged between the customer and the service worker.
They require high level of technical and analytical skills
The workers are empowered
Object of the Service Process (1) When goods are processed, a distinction
must be made between goods that belong to the customer and goods that are provided by the service firm (i.e., facilitating goods)
Processing information (i.e., receving, handling and manipulating data) occurs in all service systems.
For other services, the information is communicated indirectly by electronic means, as with telephone-based account balance verification.
Object of the Service Process (2) There are services such as counselling,
however, in which information is processed through direct interaction between the client and the project team.
Processing people involves physical changes (e.g.,haircut) or geographic changes (e.g., bus ride)
Workers must posses interpersonal as well as technical skills
Type of Customer Contact (1) Customer contact with the service delivery
system can occur in three basic ways: 1. The customer can be physically present
and interact directly with the service providers in the creation of the service
2. The contact may be indirect and occur via the internet from the customer’s home or office
3. Some service activities can be performed with no customer contact at all
Type of Customer Contact (2) Direct customer contact is subdivided
into two cathegories: 1. No interaction with service workers 2. Customer interaction with service
workers Service processes with indirect
customer contact or with no customer contact need not be constrained by issues that arise from the physical presence of the customer in the system
Type of Customer Contact (3)
The no-customer-contact and good-processing combination creates categories that normally are thought of as manufacturing. For example, dry cleaning is a batch process, and auto repair is a job shop
Generic Approaches to Service Design
Production-line• Limit Discretion of Personnel• Division of Labor• Substitute Technology for People• Standardize the Service
Customer as Coproducer• Self Service• Smoothing Service Demand• Customer-Generated Content
Customer Contact• Degree of Customer Contact• Separation of High and Low Contact Operations• Sales Opportunity and Service Delivery Options
Information Empowerment• Employee• Customer
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Discussion 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?
Go to http://www.oecd.org/home and find the current non-manufacturing share of total business R&D for the countries listed in Table 1.1. Are there any surprises?
4-36
100 Yen Sushi House
1. Prepare a service blueprint for the 100 Yen Sushi House.
2. What features differentiate 100 Yen Sushi House and how do they create a competitive advantage?
3. How has the 100 Yen Sushi House incorporated the just-in-time system into its operations?
4. Suggest other services that could adopt the 100 Yen Sushi House service delivery concept.
4-37
100 Yen Sushi House Layout
Miso and Tea Station
CONVERSATION AREA
CO
NV
ER
SA
TIO
N A
RE
A
Dishwashing Counter in Back
ENTRANCE
CONVEYOR BELT
TAKE-OUT POSITION
= CHEF
4-38
Commuter Cleaning - New Venture Proposal
1. Prepare a service blueprint for Commuter Cleaning.
2. What generic approach to service design is illustrated by Commuter Cleaning, and what competitive advantage does this offer?
3. Using the data in Table 4.7 calculate a break-even price per shirt if monthly demand is expected to be 20,000 shirts and the contract with a cleaning plant stipulates a charge of $0.50 per shirt.
4. Critique the business concept, and make recommendations for improvement.
4-39
Golfsmith
1. Prepare a service blueprint for Golfsmith.
2. What generic approach to service design does Golfsmith illustrate and what competitive advantages does this design offer?
3. Why is Golfsmith a good candidate for Internet sales?
4-40
INTERACTIVE CLASS EXERCISE
The class breaks into small groups and prepares a service blueprint for Village Volvo.
4-41