Ch4&5 Key elements of Essentials of Service...

Dr. Scott E. Sampson

Key elements fromEssentials of Service Design and Innovation

Chapters 4 & 5(preparation for completing Analysis Exercises 4&5)

Identifying the Value Proposition 1


Dr. Scott E. SampsonThorsell Professor of Service

Operations ManagementBrigham Young University

Provo, Utah, USA© 2014,2020 SES

Key elements of chapter 4: Identifying the Value Proposition


rev 5/14, 2/15 1/19 dev effort to TVV


Key concepts from Chapter 4• What is value to different entities?

• Specific beneficiaries• Generic beneficiaries

• How is value manifest?• Value potential• Value realization



What is value?



Principle of “value”• All participants in a process relationship do so because of perceived benefits (value), which is the satisfaction of some need (a condition of happiness).

• Some entities participate because of benefits inherent in the system. These “specific beneficiaries” are often called “customers.”

• Other entities participate in order to attain benefits through other systems. They access the other systems through monetary means. These “providers” are “generic beneficiaries” because the benefits they seek are not inherent in the given system.

• The point is, all entities, customers and providers, participate because of perceived benefits.



Roles

What is a provider?

An entity with:• generic needs ($ money)• specific resources

(competencies).

What is a customer?

An entity with:• specific needs• generic resources ($)• and competencies!



What is value?

to the provider? to the customer?

SA

Esteem

Love/belonging

Safety

Physiological

7Identifying the Value Proposition


Elemental conceptsWhat is value?Øsatisfaction of needsWhat are needs?Øconditions of happiness and well beingWhat is happiness (well being, quality of life, etc.)?Ø“the object and design of our existence”

• Joseph Smith• Ultimately, increasing happiness is the object and design of all organizations and relationships.



The two manifestations of value



Two valuesvalue potential

• a state of nature that has the potential to satisfy needs

value realization

• the actual satisfaction of needs, improving happiness (well being, etc.)



Driver

process domain

interaction Independent processing Direct interaction

Toyota

process domain

Independent processing interaction

Automobile PCN Diagram

produce car sell car drive car

not co-productive interactiveco-production

not co-productive



Principles of PCN Analysis• Customer value is always realized in the customers’ process domain.

• Therefore, it is important to understand what goes on in customers’ process domain.

• The primary purpose of service interaction is to facilitate value realization.

12Identifying the Value Proposition


Distinguishing between value potential and value realization

13


L

Value? Psychological benefit?Value Potential Value Realization

14

JShould we

come skiing again?

I love watching Bobby crash J

LIs there Value Realization on the lift? How much?

Would Bobby be willing to pay $130 per day to ride the lift all day and not ski?


Differences between the two conceptsValue Potential

• Seeded by provider• Speculative• Contingent• Depends on the future• May or may not be realized• Gets power from belief• Belief is perpetuated or destroyed by value realization!

Value Realization

• Customer idiosyncratic• Real!• Independent• Depends on nothing• Transitory – real but fleeting• Persistent – change of state

15


Time value of value(Four optional slides.)



Two valuesvalue potential

• a state of nature that has the potential to satisfy needs

value realization

• the actual satisfaction of needs, improving happiness (well being, etc.)



Net Present Value• NPV = ∑ R'(C'

(+,-)'/012

• Rt =expectedrevenueattimet• Ct =expectedcostattimet• i =discountrate(biastowardnearcashflows)

Net Present Happiness

• NPJ = ∑ J'(L'(+,-)'

/012

• J0 = 𝑒𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑ℎ𝑎𝑝𝑝𝑖𝑛𝑒𝑠𝑠𝑎𝑡𝑡𝑖𝑚𝑒𝑡• L0 = 𝑒𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑𝑢𝑛ℎ𝑎𝑝𝑝𝑖𝑛𝑒𝑠𝑠𝑎𝑡𝑡𝑖𝑚𝑒𝑡• i =discountrate(biastowardpresentJ andL,i=1-F)



Happiness flows JL


JJ J LL LLLJJJ J LJ LL


Happiness flows JL


LJ J LJ LJJJLL L LJ JJ


PCN AnalysisRepresenting the value proposition



Representing value on a PCN DiagramCosts and benefits to specific beneficiary (customer) are usually psychological…• put L for cost steps (waiting, inconvenience, etc.)• put J by psychological benefit steps (happiness inducing)

Costs and benefits to generic beneficiaries (providers) are usually monetary…• put -$ by cost steps• put +$ by revenue steps



“Supplier” “Customer”

Pizza Restaurant Pizza Consumer

Independent processing

Surrogate interaction

Direct interaction

Direct interaction



Representing a value proposition

developappetite

cookpizza

eatpizza

return home

maintainsupplies

servepizza

wait to beseatedseat customer

preheatovens review menu

presentcheck

preparecheck

paycheck

eatleftovers

wait forpizza

create order

developrecipes

-$ costs?+$ value?

J

L

J

L

-$

-$

+$

-$

-$

-$


L

J


see Analysis Exercise 4



Dr. Scott E. SampsonThorsell Professor of Service

Operations ManagementBrigham Young University

Provo, Utah, USA© 2014 SES

Key elements of chapter 5: Strategic Process Positioning

Strategic Process Positioning 25

rev 1/14,5/14, 2/19


Strategic Process PositioningSandwiches and Investment analysis

26Strategic Process Positioning


Sandwich Consumer

Consumer’s Process Domain

Direct interaction


Independent processing Surrogate interaction

Direct interaction

Sandwich Supplier

Supplier’s Process Domain



Direct interaction

Sandwich example from the chapter

assemble prepackaged sandwich in a factory for

sale at grocery storeassemble sandwich to order in restaurant

kitchen

assemble sandwich at a

Subway sandwich as customer

selects orders

assemble sandwich at

a buffet restaurant

assemble sandwich at home using ingredients

from the refrigerator

assemble sandwich


simple quiz

assemble sandwich assemble sandwich assemble sandwichassemble sandwichassemble sandwich


Thinking about Process Positioning

Your assignment…1. Describe what it would mean for the “analyze investments” step to be in regions 1 through 5.

2. Which of the alternatives is superior in terms of ààà

• economies of scale?• customization potential?• efficiency?


Investment firm Client

Provider's Process Domain Investor's Process Domain



Direct interaction

Direct interaction



analyzeinvestments

1 2 3 4 5


1 2 3 4 5Your assignment…1. Describe what it would mean for the “analyze investments” step to be in regions 1 through 5.

2. Which of the alternatives is superior in terms of ààà



Investment firm Client




Direct interaction

Direct interaction



Option 1:analyze

investments for printing in a newsletter

Option 2:centrally analyze client investor’s

investment portfolio

Option 3:discuss client investor's financial needs and help client analyze investment

alternatives

Option 4:analyze own

investments using provider's online

tools

Option 5:analyze own investments

using a spreadsheet

analyzeinvestments




Invest firm Client




Direct interaction

Direct interaction



analyzeinvestments

Option 1:analyze





alternatives



tools


using a spreadsheet

2. Which alternative is superior in terms of…economies of scale

customizationpotentialefficiencyefficiency

the most common economy of scale is the acquisition of expertise


Principles of process positioningInvest firm Client




Direct interaction

Direct interaction



Option 1:analyze





alternatives



tools


using a spreadsheet

greater scale and expertise greater customization potentiallowest

operatingefficiency


analyzeinvestments


Principles of process positioningInvest firm Client




Direct interaction

Direct interaction



Option 1:analyze





alternatives



tools


using a spreadsheet

greater scale and expertise greater customization potentiallowest

operatingefficiency


process requiresspecialized skills/assets

process requirescustomized attention

process requires both

Process positioning decision…

analyzeinvestments

“skillfulcustomization”

or low-cost labor andprovider wants control


back to assembling sandwiches



Sandwich Consumer


Direct interaction



Direct interaction

Sandwich Supplier




Direct interaction

Principles of process positioning

Which option provides the best…?



sale at grocery store

assemble sandwich to order in restaurant

kitchen



selects orders


a buffet restaurant



assemble sandwich

economies of scalecustomization

potentialefficiencyefficiency


Sandwich Consumer


Direct interaction



Direct interaction

Sandwich Supplier




Direct interaction

Principles of process positioning


sale at grocery store

assemble sandwich to order in restaurant

kitchen



selects orders


a buffet restaurant



assemble sandwich


process requiresspecialized skills/assets

process requirescustomized attention

process requires both

Process positioning decision…

“skillfulcustomization”

or low-cost labor andprovider wants control

greater scaleincluding expertise

greater customizationpotential

lowestoperatingefficiency


Principles of PCN Analysis• Process positioning has strategic implications.• Process positioning defines your value proposition.

• You can change and improve your value proposition by repositioning process steps.



Enabling Innovations and Relieving Innovations

Take and bake pizza case study



Take-and-bake pizza“Supplier” “Customer”




Direct interaction

Direct interaction



developappetite

pay for pizza

assemble pizza

prepare components

wrappizza

call restaurant

cook pizza

eatleftovers

eatpizza

travelhome

maintainsupplies

developrecipes

travel to store

discuss options and

specials

place order

L

customer costs? Lvalue? J

J

J

L L

Lwork

play



Enabling innovation?“Supplier” “Customer”




Direct interaction

Direct interaction



developappetite

pay for pizza

assemble pizza

prepare components

wrappizza

call restaurant

preheatovens

cook pizza

eatleftovers

eatpizza

travelhome

maintainsupplies

developrecipes

travel to store

discuss options and

specials

place order

work

play

L

L

L



Enabling innovation?“Supplier” “Customer”




Direct interaction

Direct interaction



developappetite

pay for pizza

assemble pizza

prepare components

wrappizza

call restaurant

preheatovens

cook pizza

eatleftovers

eatpizza

travelhome

maintainsupplies

developrecipes

travel to store

discuss options and

specials

place order

“enabling” innovations moveprocess steps towards customers

work

play



work

play

Enabling innovation“Supplier” “Customer”




Direct interaction

Direct interaction



developappetite

pay for pizza

assemble pizza

prepare components

wrappizza

preheatovens

cook pizza

eatleftovers

eatpizza

place orderon mobilephone app

travelhome

maintainsupplies

developrecipes

travel to store

call restaurant

discuss options and

specials

place order

The NEW Pizza Hut

iPhone App

“enabling” innovations moveprocess steps towards customers

J

Improved value

proposition



Relieving innovation?“Supplier” “Customer”




Direct interaction

Direct interaction



developappetite

pay for pizza

assemble pizza

prepare components

wrappizza

call restaurant

preheatovens

cook pizza

eatleftovers

eatpizza

travelhome

maintainsupplies

developrecipes

travel to store

discuss options and

specials

place order

“relieving” innovations moveprocess steps away from customers


L


Relieving innovation?“Supplier” “Customer”




Direct interaction

Direct interaction



developappetite

pay for pizza

assemble pizza

prepare components

wrappizza

preheatovens

cook pizza

eatleftovers

eatpizza

travelhome

maintainsupplies

developrecipes

deduct from customer account

place pizza in customer’s porch box

travel to store

“relieving” innovations moveprocess steps away from customers

call restaurant

discuss options and

specials

place order


L


Principles of PCN Analysis• Service innovation comes from process repositioning…• Enabling innovations move process steps toward

customers.• Relieving innovations move process steps away from

customers.• Optimal positioning depends on customer segment requirements.



see Analysis Exercise 5


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