Service OperationsThe Nature of Services

MBA 570Summer 2011

Unique Characteristics of Services

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

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

Heterogeneity: customer participation in delivery process results in variability

Simultaneity: opportunities for personal selling, interaction creates customer perceptions of quality

Site Location: dictated by your customers Customer Participation in the Service Process: attention

to facility design but opportunities for co-production Difficulty in measuring quality of output:

Interactive Model of an Economy

Businessservices

Publicadministration

Infrastructureservices

Tradeservices

Extractivesector

Manufacturingsector

Customer

Social/personalservices

1850 1880 1910 1935 1960 1975 1995 20070

10

20

30

40

50

60

70

80

90

Farming

Services

Industry

Global Employment, % Share

1980 1989 1998 20070

10

20

30

40

50

60

70

80Canada

US

Australia

Belgium

Israel

France

Finland

Italy

Japan

UK

Percent Employment in ServiceJobs, by Nation, 1983-2007

Growth In Employment

1980-2007

0

20

40

60

80

100

120 Legal

Business

Health

Recreat.

Hotels

Education

Retail

Financial

Wholesal

Transport

Global Private Sector Services, 1980-2007, %

1970 1996 20070

10

20

30

40

50

60

70

80

U. S.

Canada

Italy

U. K.

Japan

W. Ger.

Services as % of GDP

Why Services Are Important

Increased Competition Manufacturing Support Makes Economic Sense

“When the quality and price of competingproducts are similar or nearly identical,service activities can ‘differentiate’undifferentiated products in the mind ofthe customer”

Glaskowsky et al.

Relative Importance of Service Activities

Relative Importance of Marketing Variables

ProductPriceServiceSales EffortTOTAL

All

Indust

ries

All M

an

ufa

ctu

rin

g

Chem

icals

&Pla

stic

s M

fg.

Food M

fg.

36232318100

38242018100

38261818100

36271522100

Ele

ctro

nic

s M

fg.

Paper

Mfg

.

All

Oth

er

Manufa

cturi

ng

48142216100

29262421100

38252215100

All M

erc

han

dis

ing

Consu

mer

Goods

Merc

handis

ing

Indust

rial G

oods

Merc

handis

ing

30222721100

31232323100

28173916100

National Council of Physical Distribution Management

Parallel Product/Service Design

ProductConcept

Product Design

ProductDelivery

ServiceConcept

ServiceDesign

ServiceDelivery

SuppliersTier 2

SuppliersTier 1

Manufacturing

Inbound Logistics

Operations

Outbound Logistics

CUS

T

O

M

E

R

S

DistributorsRetailers

The Supply Chain

Information

Manufacturing

ServiceIntermediary

CommercialServices User(Self-Service)

Consumer(Self-Service)

R & D

ProductDesign

Distribution

ServicesWholesalin

gRetailingRepairing

Service IndustriesCommunications, Transportation,

Utilities, Health Care, Banking, etc.

Private Business ServicesSupporting Manufacturing,

Accounting, Legal, Consulting, Software, Maintenance

Government Support ServicesWaste Disposal Services, Road Maintenance,

Education, Health Support, Standards,Police and Fire Protection, etc.

Services Inside the

Company--Design, Legal,

AccountingAdvertising,

etc.

The Service Revolution

“There are no such things as serviceindustries. There are only industries whose service components are greater or less then those of other industries. Everybody is in service”

Theodore Levitt

Service and Profitability

Reduced operating expenses Competitive differentiation Increased quality Increased efficiency Increased responsiveness Increased market Share Increased customer loyalty

Contributors to Market Share

MarketShare

Time

Market ShareDue to

Product Features

Market ShareDue to

Captive Markets

Market ShareDue to

Service Activities

Proportion of Goods and Services in Purchase Bundle

Goods Services

100% 75 50 25 0 25 50 75 100% Self-service gasoline……………. Personal computer…………… Office copier…………………. Fast-food restaurant………… Gourmet restaurant………… Auto repair…………………… Airline flight……………………. Haircut………………………….

The Service Process Matrix Degree Degree of Interaction and

Customization of labor Intensity Low High

Service 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

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 purchased or consumed by the buyer or items provided by the consumer. Examples are food items, auto parts, legal documents, golf clubs.

The Service Package (cont.) Explicit Services: Benefits readily

observable by the senses. The essential or intrinsic features. Examples are quality of meal, attitude of the waiter, on-time departure.

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

The Servuction Service Model

Customer A

CustomerB

Bundle of ServiceBenefits Received

By Customer A

InanimateEnvironment

ContactPersonnelor Service Provider

VisibleInvisible

InvisibleOrganizationAnd System

Moments of Truth Each customer contact is called a moment

of truth.

You have the ability to either satisfy or dissatisfy them when you contact them.

A service recovery is satisfying a previously dissatisfied customer and making them a loyal customer.

Cycle of Service

Begin Service Encounter

End Service Encounter

= MOT

Service Process Orientation

Customer as Coproducer Front and Back Office Perspectives Service Profit Chain Focus on Internal and

External Customers Quality (perceptions vs expectations) Focus on Both Efficiency and

Effectiveness Use IT as Productivity Enabler for Both

Internal and External Customers

Customer Contact View of Services Degree of Customer Contact Influences

Potential Efficiency of Service

Separate High- and Low-Contact Operations

Consider Sales Opportunity and Production Efficiency Tradeoff

Servicescapes

Designing Physical Surroundings to Affect Employee and Customer Behavior

Ambient Conditions: background characteristics such as noise level, music, lighting, temperature, and scent.

Spatial Layout and Functionality: reception area, circulation paths of employees and customers, and focal points.

Signs, Symbols, and Artifacts: selection, orientation, location, and size of objects.

Service Profit Chain

• Internal quality drives employee satisfaction• Employee satisfaction drives retention and

productivity• Employee retention and productivity drives

service value.• Service value drives customer satisfaction.• Customer satisfaction drives customer loyalty.• Customer loyalty drives profitability and

growth.

InternalServiceQuality

EmployeeSatisfaction

EmployeeRetention

Employee Productivity

ExternalServiceValue

Customer Satisfaction

CustomerLoyalty

RevenueGrowth

Profitability• workplace design• job design• employee selection and development• employee rewards and recognition• tools for serving customers

•Service concept:results for customers

•service designed and delivered to meet targeted customers' needs

•retention•repeat business•referral

Operating Strategy andService Delivery System

The Links in the Service-Profit Chain

The Cycle of Capability

Careful employee and customer selection High-quality training Well-designed support systems Greater latitude to meet customer’s needs Clear limits on expectations of employees Appropriate rewards and recognition Satisfied employees Employee referrals of job candidates