Chapter 04New Service Development

McGraw-Hill/IrwinService Management: Operations, Strategy, and Information Technology, 6e

Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Learning Objectives Describe the fundamental characteristics of service innovation. Describe the four structural and four managerial elements of

service design. Describe the components of the customer value equation. Explain and differentiate what is meant by the divergence and the

complexity of a service process. Describe the sequence of states and the enablers of the new

service development process. Prepare a blueprint for a service operation. Explain the difference between direct and indirect customer

contact. Compare and contrast the four approaches to service system

design: production-line, customer as coproducer, and information empowerment.

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Innovation in Services Basic Research: Pursue a planned

search for new knowledge regardless of possible application.

Applied Research: Apply existing knowledge to problems in creation of new service.

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

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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.

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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 boarding kiosk).

Style Changes: modest visible changes in appearances.

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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

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Service Design Elements

Design 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

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New Service Development Cycle

People

Technology Systems

Product

Full Launch Development

Design Analysis

Org

aniz

atio

nal

Con

text Team

s

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

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Service Blueprint of Luxury Hotel

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Strategic Positioning Through Process Structure

Degree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital.

Degree of Divergence: Amount of discretion permitted the server to customize the service. For example the activities of an attorney contrasted with those of a paralegal.

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Structural Alternatives for a Restaurant

No ReservationsSelf-seating. Menu on Blackboard

EliminateCustomer 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

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Taxonomy of Service Processes

Low divergence High divergence (standardized service) (customized service) Processing Processing Processing Processing Processing Processing of goods Information of people of goods Information of people Dry Check Auto repair Computer No Cleaning processing Tailoring a programming Customer Restocking Billing for a suit Designing a Contact a vending credit card building machine Ordering Supervision Indirect groceries of a landing customer from a home by an air contact computer controller No Operating Withdrawing Operating Sampling Documenting Driving a customer- a vending cash from an elevator food at a medical rental car service machine an ATM Riding an buffet dinner history Using a worker Assembling escalator Bagging of health club interaction premade groceries Searching for facility (self- furniture informationDirect service) in a libraryCustomer Customer Food Giving a Providing Home Portrait HaircuttingContact service service in a lecture public carpet painting Performing worker restaurant Handling transit cleaning Counseling a surgical interaction Hand car routine bank Mass Landscaping operation washing transactions vaccination service

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Generic Approaches to Service Design

Production-line• Limit Discretion of Personnel• Division of Labor• Substitute Technology for People• Standardize the Service

Customer as Coproducer• Self Service• Smoothing Service Demand• Customer-Generated Content

Customer Contact• Degree of Customer Contact• Separation of High and Low Contact Operations• Sales Opportunity and Service Delivery Options

Information Empowerment• Employee• Customer

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Customer Value Equation

erviceuiringtheSCostsofAcqice

tyocessQualioducedsultsValue

Pr

PrPrRe

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Discussion Questions

What are the limits in the production-line approach to service?

Give an example of a service in which isolation of the technical core would be inappropriate.

What are some drawbacks of customer participation in the service delivery process?

What ethical issues are raised in the promotion of sales during a service transaction?

Go to http://www.oecd.org/home and find the current non-manufacturing share of total business R&D for the countries listed in Table 1.1. Are there any surprises?

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100 Yen Sushi House

1. Prepare a service blueprint for the 100 Yen Sushi House.

2. What features differentiate 100 Yen Sushi House and how do they create a competitive advantage?

3. How has the 100 Yen Sushi House incorporated the just-in-time system into its operations?

4. Suggest other services that could adopt the 100 Yen Sushi House service delivery concept.

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100 Yen Sushi House Layout

Miso and Tea Station

CONVERSATION AREA

CO

NV

ER

SA

TIO

N A

RE

A

Dishwashing Counter in Back

ENTRANCE

CONVEYOR BELT

TAKE-OUT POSITION

= CHEF

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Commuter Cleaning - New Venture Proposal

1. Prepare a service blueprint for Commuter Cleaning.

2. What generic approach to service design is illustrated by Commuter Cleaning, and what competitive advantage does this offer?

3. Using the data in Table 4.7 calculate a break-even price per shirt if monthly demand is expected to be 20,000 shirts and the contract with a cleaning plant stipulates a charge of $0.50 per shirt.

4. Critique the business concept, and make recommendations for improvement.

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Golfsmith

1. Prepare a service blueprint for Golfsmith.

2. What generic approach to service design does Golfsmith illustrate and what competitive advantages does this design offer?

3. Why is Golfsmith a good candidate for Internet sales?

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INTERACTIVE CLASS EXERCISE

The class breaks into small groups and prepares a service blueprint for Village Volvo.

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