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Service, Service Systems and Services Innovation

Dr. Yuhong Yan

Jan, 2008

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Big Picture … SSME

Science & Engineering

Business Administration

and Management

Social Sciences

Global Economy& Markets

BusinessInnovation

TechnologyInnovation

Social-OrganizationalInnovation

DemandInnovation

SSME = Service Science, Management, and Engineering

Knowledge sources driving service innovations…From IBM Almaden Service Research

© Copyright IBM Corporation 2006, 2007. All rights reserved.

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Unit objectives• Attain a comprehensive definition of services

– Give context to the study of services– Discuss history and early definitions of

services– Discuss differences between products and

services

• Recognize modern thinking behind services dominant logic of economic exchanges

• Slides are modified from the IBM Almaden open course on SSME

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The Evolution of Economies

Source: 2004 IBM study, based on national labor data

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Percent employment in service jobs

1980 1987 1993 1999

USA 67.1 71 74.3 80.4

Canada 67.2 70.8 74.8 73.9

Japan 54.5 58.1 59.9 72.4

France 56.9 63.6 66.4 70.8

Italy 48.7 57.7 60.2 61.1

China 13.1 17.8 21.2 26.4

(United Nations, 1999, p. ??)

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What are some everyday services?

• Transportation– Trains, planes, delivery

• Hospitality– Hotels, restaurants

• Infrastructure– Communications, electricity, water

• Government– Police, fire, mail

• Financial– Banking, investments

• Entertainment– Television, movies, concerts

• Professional Services– Doctors, lawyers, skilled craftspeople, project

management, education

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Case Study: IBM

Major Divestiture /Exit

DRAM 1999

Global Network 1999

Flat Panel Displays 2001

HDD 2002

PCs 2005

5 Year Performance Trend Prior to Exit

Revenue Declining

Profit Impact Eroding

Cash Flow Significant CapEx

From Patricia Murphy, “IBM Business Prospective 2006”

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IBM’s Portfolio Action: Acquire High Value Capabilities

From Patricia Murphy, “IBM Business Prospective 2006”

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IBM: From Commodity to Higher Values

From Patricia Murphy, “IBM Business Prospective 2006”

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The main businesses in IBM

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The Three Main Businesses in IBM

Excludes 2Q restructuring charges and PCs reclassified for 2006 segmentation changes

From Patricia Murphy, “IBM Business Prospective 2006”

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Service Market Opportunity

From Patricia Murphy, “IBM Business Prospective 2006”

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IBM Services Profile

From Patricia Murphy, “IBM Business Prospective 2006”

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IBM Software Profile

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Services

• (from IBM):A service is a provider/client interaction that creates and

captures value.

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Service Science, Management and Engineering

Science & Engineering

Business Administration

and Management

Social Sciences

Global Economy& Markets

BusinessInnovation

TechnologyInnovation

Social-OrganizationalInnovation

DemandInnovation

SSME = Service Sciences, Management, and Engineering

Knowledge sources driving service innovations…

From IBM Almaden Service Research© Copyright IBM Corporation 2006, 2007. All rights reserved.

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SSME Timeline

SSME Launched

2004

EstablishAwareness 2004-2006

Adoption 2006-2008

Embed 2008-2010

Graduates and practice2010 and beyond

Plan Mobilize Execute Reinforce

White papers Initial

discussions with university partners

Workshops Press articles Web sites Awareness in

academia, industry, gov’t

Early adopters SSME Summit

Broadened awareness

SSME curriculum development

Cross-industry SSME focus and buy-in

Joint research projects/awards

Case studies developed

SSME tools and programs growing

Service systems as complex systems

Government and foundation funding

SSME graduates Industry training Industry hiring plans

Better trained workforce +Service innovation +Sales impact +Client satisfaction +Productivity +Efficiency +Learning speed on

engagements

Key

Act

ivit

ies/

Met

rics

Results

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What are some everyday services?

• Transportation– Trains, planes, delivery

• Hospitality– Hotels, restaurants

• Infrastructure– Communications, electricity, water

• Government– Police, fire, mail

• Financial– Banking, investments

• Entertainment– Television, movies, concerts

• Professional Services– Doctors, lawyers, skilled craftspeople, project

management, education

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The Definitions of Service

• Service is the use of human resources for the benefit of another party (Vargo, 2006).

• A service is a provider/client interaction that creates and captures value (IBM, 2006).

• A service is a change in the condition of a person or a good belonging to some economic entity, brought about as the result of the activity of some other economic entity, with the approval of the first person or economic entity (Ted Hill, 1977).

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Vargo’s Service Dominant View

• Three primary notions

1. Co-creation of value

2. Relationships

3. Service provisioning

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Provider-Client relationship

• Provider– An entity (person, business, or institution) that makes

preparations to meet a need– An entity that serves

• Client– An entity (person, business, or institution) that

engages the service of another– An entity being served

• Some general relationship characteristics are that the client– Participates in the service process (also known as the

service engagement)– Co-produces the value – The quality of service delivered depends on customers

preferences, requirements, and expectations

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Lovelock’s service Matrix

Degree of labor intensitythe ratio of labor cost to capital cost

Degree of interaction and customizationability of the client to affect specialization

(Adapted from Lovelock (1983) and Fitzsimmons & Fitzsimmons (2003))

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Recipients of the service

What is the service acting

upon and how is it doing it?

PeopleProcessing

PossessionsProcessing

TangibleActions

Service is aimed at people’s

physical body

Service is aimed at material items

IntangibleActions

Service is aimed at people’s

psyche

Service is aimed at intangible

asset

(Adapted from The Nature of the Service Act, Lovelock, 1983, p. 15)

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Nature of services act matrix

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Client relationship matrix

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Availability of services matrix

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Service demand variation matrix

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Service delivery matrix

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Distinguishing services from goodsInseparability Services are created and consumed at the same time Services cannot be inventoried Demand fluctuations cannot be solved by inventory processes Quality control cannot be achieved before consumption

Heterogeneity From the client’s perspective, there is typically a wide variation in service

offerings Personalization of services increases their heterogeneous nature Perceived quality-of-service varies from one client to the next

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Distinguishing services from goodsIntangibility Services are ideas and concepts that are part of a process The client typically relies on the service providers’ reputation and the trust

they have with them to help predict quality-of-service and make service choices

Regulations and governance are means to assuring some acceptable level of quality-of-service (e.g. Sarbenes-Oxley for the financial services sector)

Perishability Any service capacity that goes unused is perished Services cannot be stored so that when not used to maximum capacity the

service provider is losing opportunities Service capability estimation and planning are key aspects for service

management

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Current services thinking

• A service is a provider-to-client interaction that creates and captures value while sharing risks

• Services are value that can be rented

• Services are the application of specialized competences (skills and knowledge)

• Services are autonomous, platform independent, business functions

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Service SystemSocio-technological System

Any number of elements, interconnections, attributes, and stakeholders interacting to satisfy the request of a known client and create value

Combination of natural and manufactured systems

Interaction elements between sociological and mechanical aspects

Humans, Processes, and Goods

Customization activity

Co-productive interaction between the provider and client

Economic transaction and creation of value

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Model of Unified Services Theory

(Sampson, 2004, p. 6)

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Open-Systems View of Service Operations

(Fitzsimmons & Fitzsimmons, 2006, p. 30)

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Service-Profit Triangle

Frontline employee Customer

Firm

Product and process formulation

Low turnoverProductivity

Loyalty

High-quality internal services and good internal management

Revenue growth and profitability

Relationship

Value of service provided

(Teboul, 2005, p. 33).

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How is value created?Management

Gaining a Customer Keeping the Customer

Pre-Production Services

• Good and Service Design

• Supplier Services

• Purchasing Services

• Contract Negotiations

• Financing

• Good and Service Guarantees

• Consulting Services

• Education/Training Services

• Sales/Marketing Services

Production Process

• Create the Good or Service

• Process Type and Capability

• Good and Service Characteristics/Features

• Price/Cost, Quality, Time, Safety, Flexibility, Innovation and Learning, market and Financial Performance

• Value and Productivity

Post-Production Services

• Servicing Loans/Financing

• Installation, Maintenance, and Field Repair Services

• Transportation Services

• Warranty/Claims Services

• Training Services

• Postsale Visits and Services

• Consulting and Technical Services

• Recycle and Remanufacture

• Warehouse/Inventory Management

Synchronized Information and Feedback Loops

Value Creation

(Collier and Evans, 2005, p. 45)

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Productivity

Labor productivity = (Output / Labor input*)

*Where labor input = people or hours

Multi-factor productivity = (Output / Labor input**)

**Where labor input = expanded to include multiple forms

Version 1.0

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Measurement of services

ProcessResource levelsRiskSocial capitalVariabilityWaste

Value

Labor + CapitalCohesivenessComplexityCorrectionEfficiencyOptimizationRisk

Revenue

•Price•Flexibility•Competitiveness

•Service outcomes•Availability•Quality•Value•Variability•Accessibility

•Experience•Prestige•Satisfaction

Out

put

Inpu

t CapabilityCapacityCost

~==

•Adaptability•Innovation•Focus•Interchangeability

Productivity

EmployeesTotal Cost

Version 1.0

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Summary of Services and Service Systems

• The nature of the services• The difference of services versus goods• How value is generated in a service system• How to measure a service