New Service Development

Design service delivery system with features to differentiate

Chap. 03

Distribution of GDP in the US EconomyProduct Services

Physical

Information

6%

10%

31%

53%

37%

63%

84%16%

D

BA

C

A = Physical Product, B= Physical Service, C= Digital Product, D= Information Service3-2

• Sources of Service Sector Growth– Information technology– The Internet as a service enabler– Innovation– Changing demographics

– Information technology• Ubiquitous computing

– Smart phones

• Personal banking– Transfer of fund– Payment of bill– Managing personal finance

• Healthcare– Off shore radiologist

– The Internet as a service enabler– Wireless connectivity, web 2.0, social networking

• Cost-effective tool to connect customers• Push information to customers

– Innovation• New service developed thru innovation

– A poor adhesive (3M, Post-it)– DVD players (Video rental)– Internet streaming (Netflex)– WWW (e-commerce, social networking, …)

• Unexpected events– The Arab Spring uprising (security evacuation insurance)

• Observant contact employee– Hotel concierge observe high demand for taxi

» Airport shuttle bus service

• Exploit information available– Sales from auto parts stores

» Frequent failures» Performance enhancements

• Service lab for testing new service– Burger King

» Store replica in a warehouse in Miami– Facebook

» Shopping notifications

– Changing demographics• French revolution

– Jobless chefs of dispossessed nobility– Open their own restaurants

• Aging population– Healthcare– Retirement (pension, 401K)

Innovation in Services

• Basic Research: Pursue a planned search for new knowledge regardless of possible application.

• Applied Research: Gaining new knowledge that will meet a specific need.

• Development: Apply knowledge to problems to improve a current service.

3-9

Challenges for Service Innovation• Ability to protect intellectual and property

technologies• Incremental nature of innovation• Degree of integration required• Ability to build prototypes or conduct tests in

a controlled environment

3-10

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 airline boarding kiosk).

• Style Changes: modest visible changes in appearances.

3-11

New Service Development Cycle

People

Technology Systems

Product

Full Launch Development

Design Analysis

Org

aniz

atio

nal

Con

text Teams

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

3-12

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

3-13

Adoption of New Technology in Services

• Challenges of Adopting New Technology– The Process is the Product

• Customers acceptance– Loss of personal attention– Learn new skills– Forgo some benefits

• Internal customers (Front office)– Retraining, (word processing vs typewriter)

• Back office– Full benefits until standard accepted industry-wide

» So many browsers, security settings

3-14

• Readiness to Embrace New Technology– Technology readiness

• Person’s propensity to embrace and use new technology

– Evaluate customers’ level of readiness• Airport check-in Kiosk

– Employee’s readiness• Implementation of ERP

Service Design ElementsDesign 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

3-16

Customer Value Equation

rviceiringtheSeostsofAcquice

tyocessQualioducedsultsValue

CPr

PrPrRe

3-17

Strategic Positioning Through Process Structure

• Degree of Complexity: – Measured by the number of steps in the service blueprint, – e.g., a clinic is less complex than a general hospital

• Degree of Divergence: – Amount of discretion permitted the server to customize

the service,– e.g., the activities of an attorney contrasted with those of a

paralegal

3-18

Structural Alternatives for a Restaurant

No Reservations

Self-seating. Menu on BlackboardEliminate

Customer 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

3-19

Service Blueprint of Luxury Hotel

F = Possible Fail Point

F

F F

F

3-20

10 minutes exercise

• Service blueprint– Pick your own service process– Design the service

• Taxonomy for service process design– Degree of divergence

• Low divergence: high volume with narrowly defined and focused service

– Opportunity to substitute automation for labor

• High divergence: more flexibility and judgment are required

– Customized service (e.g. consulting)– require high level of technical and analytic skills

Taxonomy of Service Processes

– Object of the service process• Goods

– Provided by the customer (auto repairs)» Property must be secure from damage or loss

– Provided by the service firm (facilitating goods)» Stock level and quality is concerned» E.g. MacDonald’s food items

• Information– Back office activities– Customer service: information is communicated– Consulting: information is directly interact between client &

service

• People– Physical change: haircut– Geographic change: bus ride– Interpersonal and technical skill needed

– Type of customer contact• Customer present & interact directly

– Process of people» Training in interpersonal skills» Facility issues of location, layout, and design» Managing queue

• Contact maybe indirect (via Internet)– Self service

» ATM» Boarding pass kiosk» Customer is willing to learn how to interact with machine

• No customer contact– Manufacturing style management– Batch process, job shop

Taxonomy of Service Processes

3-27

Generic Approaches to Service Design

• Production-line• routine service• control environment to ensure consistent quality & efficiency

• Customer as Coproducer• encourage customers to take an active role

• Customer Contact• Separation of High and Low Contact Operations• low-contact to be designed as a technical core

• Information Empowerment

• IT is a fundamental part of our daily life• IT can empower customer and employee

3-28

• Production-line approach• Manufacturing systems are designed with control of

process• Output is machine paced• Jobs are designed with specific tasks to perform• Tools and machines are provided to improve efficiency

– McDonald’s • Hamburger patties are measured and prepackaged• French fries …

– Limited discretionary action of personnel• Employee is given well-defined task to perform with

tool to accomplish them• Standardization & quality are the hallmarks

– Consistency in meeting specification

• Customer can expect the same level of service from all franchises

– Division of labor• Job can be broken down into groups of simple tasks• Permit specialization of labor skills• Low pay & low skill employment

– Substitution of technology for people• ATM vs teller• RFID vs Highway toll system

– Service standardization• Limited menu items guarantees a fast hamburger• Routine process, well-defined tasks, easy to control

• Customers as coproducer• Customer present in the service process can support

the competitive strategy of cost leadership with possible customization

• Beta version of software development• Productivity gains are achieved by division of labor

– Self service• Low cost airlines

– Automatic check-in kiosk, sell e-ticket over the Internet

• Customer controlled quality, e.g. Salad bar.

– Smoothing service demand– Service capacity is a time-perishable commodity– Whenever server is idle, service capacity is permanent loss– The nature of demand of a service is clearly RANDOM

» The hour of the day» The day of the week» The season of the year

• Smoothing demand will improve service productivity– Adjust service demand to match availability of service

» Appointment & reservation• Customers can avoid of waiting

» Incentive to promote off-peak hours– If attempt to smooth demand fail

» Initiate queue management• Great utilization of service • Customer’s frustration or• Disney’s FastPass create more sale opportunity

– Customer-generated content• The Internet has opened a new opportunity for

customer coproduction– Wikipedia – Social media

• Customer contact approach• Manufacturing

– use inventory to decouple customer demand to achieve efficiency

– use JIT to meet variation of demand and lower inventory

• Service delivery separate high- and low-contacts operation

– Give customers a personalization feel– Reach efficiency for back office operation

– Degree of customer contact• Service quality is perceived by the customer

experiences• Lower the percentage of the physical presence of the

customer in the system– 網路選課– DIY option

– Separation of high- and low-contact operations• High-contact operations require employee with

excellent interpersonal skills• Low-contact operations separate from customers

physically• Airlines

– Reservation staff and attendants» Wear uniform and receive training

– Baggage handlers and aircraft maintenance» Hardly seen by customers

– Sales opportunity and service delivery options

• Information empowerment– IT touch our life in all areas.– Service could not survive without use of IT

• More than a convenient way• Empower both employees and customers

– Employee empowerment• Files age

– Customer order files– Suppliers files– Inventory files– Interact WITHIN functional boundaries

• Relational Database age– Customer service agent can check inventory– Airlines agent can rebook flights at any alliance airlines– Interact ACROSS functional boundaries

– Customer empowerment• Customers no longer confined to their local service

– MIT open courses

• Customer take an active part of their service– Tracking package – Supermarket check out – Get information of their travel destinations

• Intellectual property– New service design need protection from

competitors copying • Inventions (artificial heart)• Trademark (McDonald’s golden arches)• Industrial design right (Starbucks store ambience)• Trade secret (KFC recipe)

– Ten things google has found to be true (p.82)

• Mini cases– Case 3.1, 100 yen sushi house– Case 3.3, Amazon.com (p. 86)