service management (part two) - eng.docente.unicas.it · value chain, value co-creation, service...

VALUE CHAIN, VALUE CO-CREATION, SERVICEMANAGEMENT, RELATIONSHIP MARKETING

Roberto [email protected]

Service Management(part two)

SECOND PRESENTATION

Value chain(Porter)

constellation

Value co-creation

Relevance ofthe

relationships

RelationshipMKTG

Firstapproach in

servicemanagement

SD-Logic

MKTGPhilosophy

1

2

3

4

5

THE VALUE CHAIN (PORTER)

In the “value chain approach”, the Company have to analize 2essential elements to have a valid product:· The activities of value generation (to understand what activity iscapable to generate value it is important to analyze how much is the costof this activity)· The margin (difference between total revenues and total costs)

Each activity, to achieve the value creation uses:• Human resources• External inputs (raw materials, services, etc.)• technologies (machineries, information systems, etc)• Data (information on customers, orders, statistics, etc)

VALUE CHAIN ELEMENTS

• Customer value added• Margin orientation• Primary activities

– Inbound logistics– Operations– Outbound logistics– Sales and marketing– Service and support

• Support Activities– Firm infrastructure– Human resources

(general and admin.)– Technology (R&D)– Procurement

How the management can mix these activities to reducethe costs and to have an increase of margin?

Only analyzing the Company as a whole it is possible to understand thecompetitive advantage (Porter 1985). The cost advantage and thedifferentiation of the success are inside the value chain

The Company have to involve all activities inside and outside theCompany (Support activities and primary activities) to gain the valuecreationValue Chain Benefits: identifies value processes and identifies areas for costimprovement.

RELATIONS INSIDE THE VALUE CHAIN

• The processes are integrated among themindependently from the relations and interactions withthe context outside the Company;

• The value is the economic sacrifice that the customerspay to have the products or services

• In the Value Chain, when revenues are more than costs,profits and value are the same thing.

Value creation system

Porter value system model:• Is based on a sequential logic;• Is not a win – win logic, because it isbased on power relations;

• It is based on value added creation.

Suppliers

End Market

Value creation chainPorter value chain model:• helps a better analysis of competitiveposition

• refers with concurrents identifing internalstrenghts and weaknesses

• Supports with effective and efficient theimprovements in all activities involved inthe chain

TOWARD THE CONCEPT OF VALUE CONSTELLATION

There are differences in setting background between thevalue chain (1985) and the constellation (1995).In the constellation the relations are not based onforce and power logic, but on interactive andcollaborative relations, mutual benefit and trust(confidence).

The value constellation twists the Porter’s logic ofvalue creation (based on relations of power andeconomic convenience) to search for an harmoniouscoordination and synergy between the actors, topromote "win-win” logic.The increase in value added is co-created and sharedbetween company, co-makers and customers.

The constellation is very close to the cultural settings ofNormann and Ramirez, scholars of Services Companies.The value chain (Porter) is useful for single companies and toanalyze the situation insideThe constellation seems most appropriate to provide anattitude to the relations among business systems, able toincrease value for all stakeholders (including customers),because it is based on a culture of excellence,improvement and lifelong learning.

THE VALUE CREATION IN CONSTELLATION

Value ConstellationRegarding the evolution in interpreting international Models of competitiveadvantage, we can find the valorization of multiple contributions to valuecreation process inside observed systems; in constellations systems ahypothetical virtuous cycle can satisfy the needs of the service value network.

Firm

Co-maker

Co-maker

Co-maker

Co-maker

Co-maker

Co-maker

Co-maker

Co-maker

Co-maker

The value constellation twists thePorter’s logic of value creation(based on relations of power andeconomic convenience) searching asynergy and a coordination amongthe actors, to promote "win-win“logic.The increase in value added isshared between the company, co-makers and customers.

THE VALUE CO-CREATION CONCEPT

THE VALUE CO-CREATION CONCEPT (DALLI, GALVAGNO, 2014)

The “co-creation” is a general concept that encompassesthe specific theoretical and empirical occurences in whichcompanies and customers generate value throughthe interaction (Vargo and Lusch, 2008)

As Prahalad and Ramaswamy (2003, 2004a, 2004b) co-creation could and should provide benefits forcompanies and customers, such improvingconsumption and usage experiences, stimulating productand service innovation (Sawhney et al. 2005; Bitner et al. 2008)

In the service science perspective (Vargo and Lusch, 2004) co-creation is at the base of this theory and marketoffering and the generation of the request benefitsare realized through the customer collaboration


Three theoretical perspectives (some relevant research topics): Service science: co-creation is the constitutive and

intrinsic element of service, as if there is no servicewithout co-creation. Co-creation is seen at the core of thetheoretical development of a service systems science

Innovation and technology management perspective: co-creation is the result of customer-company interaction inthe customer service, innovation and value creation ingeneral

Marketing and consumer research perspective: theresearches focus is on the customers’ roles in the co-creation process, also examing factors that explainconsumers’ presumption orientations, willingness to beinvolved in co-production and interaction with companies

Different developments on the co-creation concepts: Ostrom (2010): service science is an emerging interdisciplinary

field of inquiry that focuses on fundamental science,models, theories, and applications to drive serviceinnovation, competition and wellbeing through co-creation of value

Holbrook, O’Shaughnessy (1988) - in consumer studies perspective:consumption is as a highly symbolic and cultural activity

in which consumers give products and servicessubjective meaning so, the co-creation has a relevantvalueThe symbolic and cultural meaning that consumers co-

create are the very reason for their attractiveness (Arnouldand Thompson, 2005)



Some aspects highlighted by various authorsabout co-creation (criticisms): Edvardsson et al 2011 say that in the SD Logic approach,

social forces, actors and institutions affect value co-creation because their influences on customers andproviders positions in the social structure

Involving customers in the value co-creation processmay be seen as a form of exploitation if the “workingconsumers” are not adequately compensated (Cova and Dalli,2009)

Considering and employing customers as partnershave been criticized as a way to manipulate them (Zwicket al. 2008; Bonsu and Darmody, 2008)

FROM TRADITIONAL MANAGEMENTTO SERVICE MANAGEMENT

SERVICE MANAGEMENT

HOW SERVICE MANAGEMENT EMERGED

WHAT IS SERVICE MANAGEMENT

DIFFERENCE BETWEEN TRADITIONALMANAGEMENT AND SERVICE MANAGEMENT

WHAT CONTRIBUTIONS SERVICEMANAGEMENT OFFERS TO MANAGEMENTRESEARCH AND PRACTICE

SERVICE MANAGEMENT: THE FIRSTSTEPS

The term service management was introduced in Swedish in1982 and in English in 1984. Since then it has slowlybecome a term used to indicate a common perspective

The service management perspective has emergedwithin several disciplines with a number of somewhatdifferent and yet interrelated angles.

One can say that major impacts on this perspective comefrom at least six different areas: MARKETING,OPERATIONS MANAGEMENT, ORGANIZATIONALTHEORY AND HUMAN RESOURCES MANAGEMENT,MANAGEMENT, AND SERVICE QUALITY MANAGEMENT,AND FINALLY BUSINESS EXECUTIVES ANDCONSULTANTS.

WHAT’S SERVICE MANAGEMENT (GRÖNROOS, 1988,1990A)

Service Management is: No simple to define To understand how quality is perceived in customer

relationships and how it changes over time To understand how the organization (personnel

technology and physical resources, systems and customers) willbe able to produce and deliver this utility or quality

To understand how the organization should bedeveloped and managed so that the intended utilityor quality is achieved

To organize the company achieving the objectivesof utility and quality of all parties involved(stakeholders)

WHAT’S SERVICE MANAGEMENT It is an overall management perspective which should

guide decisions in all areas of management (not onlyprovide management principles for a separate functionsuch as customer service);

It is customer driven or market driven (not driven byinternal efficiency criteria);

It is a holistic perspective which emphasizes theimportance of intraorganizational, cross-functionalcollaboration (not specialization and the division of labour);

Managing quality is an integral part of servicemanagement

Internal development of human resources and actorsinvolved in the business are strategic prerequisites forsuccess

DIFFERENCE BETWEEN TRADITIONAL MANAGEMENTAND SERVICE MANAGEMENT

The traditional management focus is on the costreduction efforts and economies of scale

The management of the “material things” may become amanagement trap for firms and lead to a vicious circlewhere the quality of the service (and the quality of the wholecompany) is damaged, internal workforce environmentdeteriorates, customer relationships suffer, and eventuallyprofitability problems occur

Service management as an overall managementperspective gives high priority to the external efficiencyof the firm, customer perception of the quality of thecore products and the total performance of a firm instead ofoveremphasizing internal efficiency, economies of scale and cost reduction.

TRADITIONAL MANAGEMENT

Division of labour

Specialization

Short-term perspective

Adversary relationship betweenfunctions within the firm andbetween the firm and its externalpartners, such as customers,suppliers and middlemen.

Teamwork Long-term perspective Interfunctional collaboration Interorganizational partnership Communication efforts are often

considered investments incustomers more than marketingexpenses.

The development of thepersonnel and the creation ofemployee commitment are keyissues.

SERVICE MANAGEMENT

KEY FOCUS IN SERVICE MANAGEMENT

Service management is a management perspectivebased on the Cost reduction in production and on the increasing investments

in relations Core product quality and investments in customer

quality recognition processes Integration of services in the core product Consideration that marketing is an holistic approach Relevance of the relationships inside and outside the

company in the medium and long run

RELATIONSHIP MARKETING AND THECUSTOMER RELATIONSHIPIMPROVEMENT

THE RELATIONSHIP MARKETING

The Relationship marketing arises as a result ofthe reflections about the paradigm of traditionalmarketing

In the late '70 the paradigm of marketing concept(4Ps) begins to be subjected to criticism

At beginning of the '80, scholars of industrialmarketing and service marketing have started todevelop the concept of relationship marketing.

Its focus is on the development of long-terminteractive relationships between producers andusers.

Service management helps to emerge therelationship marketing become companies andresearchers

The marketing aims to "initiate, negotiateand manage the exchange relationshipswith key interest groups, in order toachieve sustainable competitiveadvantages in specific markets, on thebasis of long-term agreements withcustomers and suppliers" (Hakansson,1979)


"Companies must shift their focus fromshort-term goals, focusing ontransactions, to objectives aimed atbuilding long-term relationships withcustomers.”

(Kotler, 1992)


DIFFERENCES BETWEEN TRADITIONAL MARKETING ANDRELATIONSHIP MARKETING

Traditional Marketing basedonly on communication activities

Relationship Marketing

Perspective short period long term

Orientation conflict collaborationNumber ofcustomers

high limited

Demand increasing saturatedCustomers inexperienced expertCompetition weak strong

ICT simple sophisticatedGoals volumes and margins Customer satisfaction

Innovative element is the centralityand interactivity of the relationships thatdevelop between the parties

Both actors have an active role in thetransactions

The exchange model taken as a reference ischaracterized by the “bi-directionality” (first steps for theco-creation concepts)

The evolution of' time horizon which in this areais identified in the medium / long term

THE FEATURES OF RELATIONSHIP MARKETING

RELATIONSHIP MARKETINGIN THE SERVICE SECTOR

The term relationship marketing was used forthe first time, with reference to the servicesector, in 1983 by Berry: the author defined itas "a marketing approach designed to start,maintain and improve relationships withcustomers“

The most recent studies of relationshipmarketing are focusing mainly on the issue ofcustomer loyalty

The model developed by Bendapudi and Berry identifies fourdifferent variables that can affect the characteristics ofrelations:

environmental variables characteristics of service provider the characteristics of the consumer the interaction variables

In the service companies, the participation of the clientis active; Prosumer (producer and consumer)= clientmanufacturer and user, for the coincidence betweenproduction and use of the service.

RELATIONSHIP MARKETING IN THE SERVICE SECTOR

In industrial enterprises the customer is activelyinvolved in defining the specifications of the product.

Relationship marketing pays attention to cooperativerelationships that develop at the inter-organizational.

Also emphasizes the interactive relationships with otherbusiness functions and with end customers.

The challenge of relationship marketing is to be able todevelop and maintain lastingand personalized relationships with customer.

THE RELATIONSHIP MARKETING IN INDUSTRIALCOMPANIES

Two concepts of relationship marketing are emerging:1) the first, limiting, is emerging as the new setting of

direct marketing (which become interactive marketing)and it focuses on the personalization of informationflows.

New technologies allow it:- the management of large and complex data base- new forms of interactive communication at a distance;


2) The second approach provides a direct involvementof the customer in the decision-making process.

The customers become partners with whom the companyhas to work to increase the value of the products supplied.

This requires the establishment of relationships based on:- interactivity- connection- mutual learning


Relationship marketing comes from four areas of development ofmarketing:

1.Service marketing organization2.Marketing channel3.B2B marketing4.database and direct marketing.

The four approaches are an important aid in moving the focusof marketing from pure transaction to the relationship that isformed over time with customers.


CUSTOMER RELATIONSHIP MANAGEMENT

The CRM is a fundamental businessstrategy that integrates processes and

inside functions and outsidenetworks to create and deliver value to

customers.It is based on high quality data, customer

data, and it is feasible thanks toinformation technology

STRATEGIC CRMThrough the CRM, the business strategy aims to conquer

and retain the most profitable customers. OPERATIONAL CRMIt focuses on the automation of customer relations, such

as sales, marketing and customer service. ANALYTICAL CRMIt focuses on the exploitation of data related to the

customer COLLABORATIVE CRMIt applies the technology beyond the borders of the

company in order to create value for the company itself,for the customer and for all stakeholders.

CUSTOMER RELATIONSHIP MANAGEMENT

LATEST DEVELOPMENTS OFRELATIONSHIP MARKETING

The company should interact with customers and storethe contents of these dialogues activating a process ofmutual learning from each contact.

Use the feedback to each customerto customize the offer, managing the individuality ofcustomers.

New technologies can help automate the process ofcustomizing (e.g.: the Social Network Sites)

The last phase is more complex: to realizethe "learning relationship" that encourages customerloyalty.

service management (part two) - eng.docente.unicas.it · value chain, value co-creation, service...

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