ISM 270ISM 270

Service Engineering and Service Engineering and ManagementManagement

Lecture 3: Technology in ServicesLecture 3: Technology in Services

AnnouncementsAnnouncements

Homework 1 due todayHomework 1 due today Homework 2 due next week 1/30Homework 2 due next week 1/30 Project 1 given today, due 2/13 Project 1 given today, due 2/13

Today’s LectureToday’s Lecture

Review of Strategic Advantage (Porter Review of Strategic Advantage (Porter Model)Model)

Role of Technology in ServicesRole of Technology in Services Alan Karp, HP LabsAlan Karp, HP Labs

Understanding the Competitive Understanding the Competitive Environment of a CompanyEnvironment of a Company

Companies do not exist in a vacuum:

It is necessary to understand the competitive environment to assess the current competitive position of a company.

It has become increasingly necessary to posture a company for challenges in its future.

Porter Competitive ModelPorter Competitive Model

Intra-Industry RivalryStrategic Business Unit

BargainingPower of Buyers

Bargaining Power

of Suppliers

Substitute Products

and Services

PotentialNew Entrants

Competitive Model FocusCompetitive Model Focus

• What is driving competition in the current or

future industry?

• What are current or future competitors likely

to do and how can a company respond?

• How can a company best posture itself to

achieve and sustain a competitive advantage?

Competitive Model ForcesCompetitive Model Forces

Intra-industry Rivals: Strategic Business Unit (SBU) and major rivals.

Buyers: Categories of major customers.

Suppliers: Categories of major suppliers that play a significant role in enabling the SBU to conduct its business.

New Entrants: Companies that are new as competitors in a geographic market or existing companies that through a major shift in business strategy will now directly compete with the SBU.

Substitutes: An alternative to doing business with the SBU.

Intra-Industry Rivalry SBU: UCSC Rivals: UC campuses, CSU, Private universities, Community Colleges

BargainingPower of Buyers

Bargaining Power

of Suppliers

Substitute Products

and Services

PotentialNew Entrants

• Faculty• Staff• Equipment and Service Suppliers• Alumni• Foundations• Governments• IT Vendors

• Internet Distance Learning• Books and Videotapes• Computer-Based Training• Company Education Programs

• Students• Parents• Businesses• Employers• Legislators

• Foreign Universities• Shift in Strategy by Universities or Companies

Porter Competitive Model Education Industry – Porter Competitive Model Education Industry – Universities U.S. Market Universities U.S. Market

Role of Technology through Role of Technology through Porter perspective: Can we…Porter perspective: Can we…

1. Build barriers to prevent a company from entering an industry?

2. Build in costs that would make it difficult for a

customer to switch to another supplier?3. Change the basis for competition within the

industry?4. Change the balance of power in the relationship

that a company has with customers or suppliers?5. Provide the basis for new products and services,

new markets or other new business opportunities

Porter Competitive Porter Competitive StrategiesStrategies

Differentiation StrategiesDifferentiation Strategies

Innovation StrategiesInnovation Strategies

Growth StrategiesGrowth Strategies

Alliance StrategiesAlliance Strategies

Cost Leadership StrategiesCost Leadership Strategies Primary

Strategies

Supporting

Strategies

Porter Primary StrategiesPorter Primary Strategies

DifferentiationDifferentiation—customer values the differences that you —customer values the differences that you provide in products, services or capabilities.provide in products, services or capabilities.

Cost—is least cost. If this is the primary strategy, over time there will only one ultimate winner.

Porter Supporting Porter Supporting StrategiesStrategies

InnovationInnovation—either with business strategies or use of —either with business strategies or use of

information systems or both.information systems or both.

Growth—deals with growth in revenue and other business volumes. Can be a key factor in establishing a market position. Can also be a major requirement to offset high fixed operating costs.

Alliances—importance of establishing a strong relationship with suppliers and other business partners often on a contractual basis.

Dell, Inc. StrategiesDell, Inc. Strategies

Primary Strategy:

Differentiation

Least Cost

Supporting Strategies:

Innovation

Growth

Alliances

IT SignificanceIT Significance

Information Technology can change the way that an organization (business or public sector) competes.

• As the foundation for organizational renewal.

• As a necessary investment that should help

achieve and sustain strategic objectives.• As an increasingly important communication

network among employees and with customers,

suppliers, business partners and even

competitors.

Strategic Roles Strategic Roles of Information Systemsof Information Systems

Specific Examples:Specific Examples: Lower CostsLower Costs DifferentiateDifferentiate InnovateInnovate Promote GrowthPromote Growth Develop AlliancesDevelop Alliances Improve Quality and EfficiencyImprove Quality and Efficiency Build an IT PlatformBuild an IT Platform Support (enable) other StrategiesSupport (enable) other Strategies

New Service DevelopmentNew Service Development

Learning ObjectivesLearning Objectives

Discuss the new service development Discuss the new service development process.process.

Prepare a blueprint for a service operation.Prepare a blueprint for a service operation. Describe a service process using the Describe a service process using the

dimensions of divergence and complexity.dimensions of divergence and complexity. Use the taxonomy of service processes to Use the taxonomy of service processes to

classify a service operation.classify a service operation. Compare and contrast the generic Compare and contrast the generic

approaches to service system design.approaches to service system design.

Levels of Service InnovationLevels of Service InnovationRadical InnovationsRadical Innovations

Major InnovationMajor Innovation: new service driven by information and : new service driven by information and computer based technologycomputer based technology

Start-up BusinessStart-up Business: new service for existing market: new service for existing market New Services for the Market Presently ServedNew Services for the Market Presently Served: new : new

services to customers of an organizationservices to customers of an organization

Incremental InnovationsIncremental Innovations Service Line ExtensionsService Line Extensions: augmentation of existing service : augmentation of existing service

line (e.g. new menu items)line (e.g. new menu items) Service ImprovementsService Improvements: changes in features of currently : changes in features of currently

offered serviceoffered service Style ChangesStyle Changes: modest visible changes in appearances: modest visible changes in appearances

Technology Driven Service InnovationTechnology Driven Service Innovation

Power/energyPower/energy - International flights with jet - International flights with jet aircraftaircraft

Physical designPhysical design - Enclosed sports stadiums - Enclosed sports stadiums MaterialsMaterials - Astroturf - Astroturf MethodsMethods - JIT and TQM - JIT and TQM InformationInformation - E-commerce using the Internet - E-commerce using the Internet

Service Design Service Design ElementsElements

StructuralStructural- Delivery system- Delivery system- Facility design- Facility design- Location- Location- Capacity planning- Capacity planning

ManagerialManagerial- Service encounter- Service encounter- Quality- Quality- Managing capacity and demand- Managing capacity and demand- Information- Information

New Service Development CycleNew 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

Service Blueprint of Luxury HotelService Blueprint of Luxury Hotel

Strategic PositioningStrategic Positioning Through Process Structure Through Process Structure

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

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

Structural Alternatives for a RestaurantStructural 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 ORDERSPREPARE ORDERS

Salad (4 choices)

Entree (15 choices)

Dessert (6 choices)

Beverage (6 choices)SERVE ORDERS

COLLECT PAYMENT

Specific Table SelectionRecite Menu: Describe Entrees & SpecialsAssortment of Hot Breads and Hors D’oeuvresAt table. Taken Personally by Maltre d’

Individually Prepared at table

Expand to 20 Choices: Add Flaming Dishes;Bone Fish at Table; Prepare Sauces at TableExpand to 12 Choices

Add Exotic Coffees; Sherbet betweenCourses; Hand Grind Pepper

Choice of Payment. Including House Accounts:Serve Mints

LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE

Taxonomy of Service ProcessesTaxonomy of Service Processes Low divergence High divergenceLow divergence High divergence (standardized service) (customized service)(standardized service) (customized service)

Processing Processing Processing Processing Processing Processing Processing Processing Processing Processing ProcessingProcessing of goods of goods Information of people Information of people of goods of goods Information Information of peopleof people

Dry Dry Check Check Auto repair Auto repair ComputerComputer NoNo Cleaning Cleaning processing processing Tailoring a Tailoring a programmingprogramming CustomerCustomer Restocking Restocking Billing for a Billing for a suit suit Designing a Designing a ContactContact a vending a vending credit card credit card buildingbuilding machine machine

Ordering Ordering SupervisionSupervision Indirect Indirect groceries groceries of a landingof a landing customer customer from a home from a home by an airby an air contact contact computer computer controllercontroller No Operating No Operating Withdrawing Withdrawing Operating Operating Sampling Sampling Documenting Documenting Driving aDriving a customer- a vending customer- a vending cash from cash from an elevator an elevator food at a food at a medical medical rental carrental car service machine service machine an ATM an ATM Riding an Riding an buffet dinner buffet dinner history history Using a Using a worker Assembling worker Assembling escalator escalator Bagging of Bagging of health clubhealth club interaction premade interaction premade groceries groceries Searching for Searching for facilityfacility (self- furniture (self- furniture informationinformation

service) service) in a libraryin a libraryDirectDirectCustomer Food Customer Food Giving a Giving a Providing Providing Home Home Portrait Portrait HaircuttingHaircuttingCustomer Contact service service in a Customer Contact service service in a lecture lecture public public carpet carpet painting painting PerformingPerforming worker restaurant worker restaurant Handling Handling transport- transport- cleaning cleaning Counseling Counseling a surgicala surgical interaction Hand car interaction Hand car routine bank routine bank ation ation Landscaping Landscaping operation operation washing washing transactions transactions Providing Providing serviceservice mass mass vaccination vaccination

Generic Approaches to Service Generic Approaches to Service DesignDesign

Production-lineProduction-line• • Limit Discretion of PersonnelLimit Discretion of Personnel• • Division of LaborDivision of Labor• • Substitute Technology for PeopleSubstitute Technology for People• • Standardize the ServiceStandardize the Service

Customer as CoproducerCustomer as Coproducer• Self Service• Self Service• Smoothing Service Demand• Smoothing Service Demand

Customer ContactCustomer Contact• Degree of Customer Contact• Degree of Customer Contact• Separation of High and Low Contact Operations• Separation of High and Low Contact Operations

Information EmpowermentInformation Empowerment• Employee• Employee• • CustomerCustomer

Customer Value EquationCustomer Value Equation

erviceuiringtheSCostsofAcqPrice

lityProcessQuaducedResultsPro

Value

Project 1Project 1

Technology in ServiceTechnology in Service

Learning ObjectivesLearning Objectives

Discuss the of technology in the service Discuss the of technology in the service encounter.encounter.

Describe the emergence of self-service.Describe the emergence of self-service. Place an example of service automation in its Place an example of service automation in its

proper category.proper category. Describe different Internet business models.Describe different Internet business models. Understand the importance of scalability to e-Understand the importance of scalability to e-

commerce success.commerce success. Discuss the managerial issues associated with Discuss the managerial issues associated with

the adoption of new technology.the adoption of new technology.

Role of Technology in the Service EncounterRole of Technology in the Service Encounter

Technology Technology Technology

Technology Technology

Customer Customer ServerServer

Server 

Server 

Server

CustomerCustomer

Customer

 

D. Technology-MediatedService Encounter

E. Technology-GeneratedService Encounter

A. Technology-FreeService Encounter

B. Technology-AssistedService Encounter

C. Technology-FacilitatedService Encounter

Evolution of Self-serviceEvolution of Self-serviceService Industry Human Contact Machine Assisted Service Electronic Service

Banking Teller ATM Online banking

Grocery Checkout clerk Self-checkout station Online order/ pickup

Airlines Ticket agent Check-in kiosk Print boarding pass

Restaurants Wait person Vending machine Online order/ delivery

Movie theater Ticket sale Kiosk ticketing Pay-for-view

Book store Information clerk Stock-availability terminal Online shopping

Education Teacher Computer tutorial Distance learning

Gambling Poker dealer Computer poker Online poker

Self-service Technologies (SST) Self-service Technologies (SST)

Does customer adoption of self-service follow a Does customer adoption of self-service follow a predictable pattern?predictable pattern?

How do we measure self-service quality (e.g., How do we measure self-service quality (e.g., ease of use, enjoyment, and/or control)?ease of use, enjoyment, and/or control)?

What is the optimal mix of SST and personal What is the optimal mix of SST and personal service for a service delivery system?service for a service delivery system?

How do we achieve continuous improvement How do we achieve continuous improvement when using SST?when using SST?

What are the limits of self-service given the loss What are the limits of self-service given the loss of human interaction?of human interaction?

Classification of Service Classification of Service AutomationAutomation

Fixed-sequence (F) - parking lot gateFixed-sequence (F) - parking lot gate Variable-sequence (V) - ATMVariable-sequence (V) - ATM Playback (P) - answering machinePlayback (P) - answering machine Numerical controlled (N) - animationNumerical controlled (N) - animation Intelligent (I) - autopilotIntelligent (I) - autopilot Expert system (E) - medical diagnosisExpert system (E) - medical diagnosis Totally automated system (T) - EFTTotally automated system (T) - EFT

Purpose of Web-sitePurpose of Web-site A retail channel (Amazon.com)A retail channel (Amazon.com) Supplemental channel (Barnes & Nobel)Supplemental channel (Barnes & Nobel) Technical support (Dell Computer)Technical support (Dell Computer) Embellish existing service (HBS Press)Embellish existing service (HBS Press) Order processing (Delta Airline)Order processing (Delta Airline) Convey information (Kelly Blue Book)Convey information (Kelly Blue Book) Organization membership (POMS.org)Organization membership (POMS.org) Games (Treeloot.com) Games (Treeloot.com)

Technology Convergence Technology Convergence Enabling E-BusinessEnabling E-Business

InternetInternet Global telephone systemGlobal telephone system Communications standard TCP/IP Communications standard TCP/IP

(Transfer Control Protocol/Internet Protocol)(Transfer Control Protocol/Internet Protocol)

Addressing system of URLsAddressing system of URLs Personal computers and cable TVPersonal computers and cable TV Customer databasesCustomer databases Sound and graphicsSound and graphics User-friendly free browserUser-friendly free browser

E-Business ModelsE-Business Models((Weill & Vitale, Weill & Vitale, Place to SpacePlace to Space, HBS Press, 2001), HBS Press, 2001)

Content Provider: Reuters Content Provider: Reuters Direct to Customer: DellDirect to Customer: Dell Full-Service Provider: GE Supply Co.Full-Service Provider: GE Supply Co. Intermediary: eBayIntermediary: eBay Shared Infrastructure: SABREShared Infrastructure: SABRE Value Net Integrator: 7-Eleven JapanValue Net Integrator: 7-Eleven Japan Virtual Community: Monster.comVirtual Community: Monster.com Whole-of-Enterprise: GovernmentWhole-of-Enterprise: Government

Economics of E-BusinessEconomics of E-Business

Sources of Revenue:Sources of Revenue:- Transaction fees- Transaction fees- Information and advice- Information and advice- Fees for services and commissions- Fees for services and commissions- Advertising and listing fees- Advertising and listing fees

OwnershipOwnership- Customer relationship- Customer relationship- Customer data- Customer data- Customer transaction- Customer transaction

Electronic and Traditional Electronic and Traditional ServicesServices

Features Electronic Traditional

Encounter Screen-to-face Face-to-face

Availability Anytime Working hours

Access From anywhere Travel to location

Market Area Worldwide Local

Ambiance Electronic interface

Physical environment

Payment Credit card Cash or check

Differentiation Convenience Personalization

Privacy Anonymity Social interaction

Grocery Shopping ComparisonGrocery Shopping Comparison

On-lineShopping

TraditionalShopping

Advantages ConvenienceSaves timeLess impulsebuying

See new itemsMemory triggerProduct samplingSocial interaction

Disadvantages Forget itemsLess controlNeed computerDelivery fee

Time consumingWaiting linesCarry groceriesImpulse buying

Economics of ScalabilityEconomics of ScalabilityDimensions High Scalability Low

E-commerce continuum

Sellinginformation(E-service)

Selling value-added service

Sellingservices with

goods

Selling goods(E-commerce)

Information vs. Goods Content

Information dominates

Information with some service

Goods with support services

Goods dominate

Degree of Customer Content

Self-service Call center backup Call center support Call center order processing

Standardization vs. Customization

Mass distribution Some personalization

Limited customization

Fill individual orders

Shipping and Handling Costs

Digital asset Mailing Shipping Shipping, order fulfillment, and warehousing

After-sales service None Answer questions Remote maintenance Returns possible

Example Service Used car prices Online travel agent Computer support Online retailer

Example Firm Kbb.com Biztravel.com Everdream.com Amazon.com

Adoption of New Technology in Adoption of New Technology in ServicesServices

Challenges of Adopting New TechnologyChallenges of Adopting New TechnologyThe Process is the ProductThe Process is the ProductBack Office vs Front Office ChangesBack Office vs Front Office ChangesNeed for StandardizationNeed for Standardization

Managing the New Technology Adoption Managing the New Technology Adoption ProcessProcess

Ten step process with concern for Ten step process with concern for employees and customersemployees and customers

DiscussionDiscussion

Name an Internet site you believe will be Name an Internet site you believe will be successful in the long run - explain why.successful in the long run - explain why.

E-Business Supply Chain E-Business Supply Chain (Network) Elements(Network) Elements

Major entities including firm of interest and its Major entities including firm of interest and its customers, suppliers, and alliescustomers, suppliers, and allies

Major flows of product, information, and moneyMajor flows of product, information, and money Revenues and other benefits each participant Revenues and other benefits each participant

receivesreceives Critical aspects: participants, relationships, and Critical aspects: participants, relationships, and

flowsflows

ExampleExample: 7-Eleven Japan: 7-Eleven Japan

Evolution of B2C E-Commerce in Evolution of B2C E-Commerce in JapanJapan

1.1. What features of the 7-Eleven Japan What features of the 7-Eleven Japan distribution system illustrate the “Value Net distribution system illustrate the “Value Net Integrator” e-business model?Integrator” e-business model?

2.2. Does the 7-Eleven Japan distribution system Does the 7-Eleven Japan distribution system exhibit scalability economics?exhibit scalability economics?

3.3. How does the 7-Eleven example of B2C e-How does the 7-Eleven example of B2C e-commerce in Japan illustrate the impact of commerce in Japan illustrate the impact of culture on service system design?culture on service system design?

4.4. Will the 7-Eleven “Will the 7-Eleven “KonbiniKonbini and Mobile” system and Mobile” system be adopted in the United States?be adopted in the United States?

Alan KarpAlan Karp

Head of Virus Safe Computing Initiative, Head of Virus Safe Computing Initiative, HP LabsHP Labs

Ph.D. Astronomy, University of MarylandPh.D. Astronomy, University of Maryland 15 years at IBM, 15 years at HP Labs15 years at IBM, 15 years at HP Labs Expert in large scale scientific computing, Expert in large scale scientific computing,

distributed service developmentdistributed service development