New Service Development

McGraw-Hill/Irwin Copyright © 2011 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. e.g. banks

Incremental nature of innovation. e.g. restaurant

Degree of integration required. e.g. Systems integration

Ability to build prototypes or conduct tests in a controlled environment. e.g. how can a service being tested in a lab?

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Levels of Service Innovation

Radical Innovations Major Innovation: new service that customers did not know

they needed; e.g. drive-through Start-up Business: new service for underserved market-credit-

card customized for certain hypermarket New Services for the Market Presently Served: new services to

customers of an organization; e.g. bank branches in hypermarket..

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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Levels of Service Innovation

Incremental Innovations

Service Line Extensions: augmentation of existing service line (e.g. first class check-in special lounge)

Service Improvements: changes in service delivery process (e.g. self-service boarding kiosk)

Style Changes: modest visible changes in appearances, (e.g. petronas oil station)

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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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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 ElementsDesign 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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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 (standardized service) High divergence (customized service)

Processing of goods

Processing Information

Processing of people

Processing of goods

Processing Information

Processing of people

No customer contact

•Dry Cleaning•Restocking a vending machine

•Check processing•Billing for a credit card

•Auto repair•Tailoring a suit

•Computer programming•Designing a building

Indirect customer contact

•Ordering groceries from a home computer

•Supervision of a landing by an air controller

Direct Customer Contact

No customer-service worker interaction (self-service)

•Operating a vending machine•Assembling premade furniture

•Withdrawing cash from an ATM

•Operating an elevator•Riding an escalator

•Sampling food at a buffet dinner•Bagging of groceries

•Documenting medical history•Searching for information in a library

•Driving a rental car•Using a health club facility

Customer service worker interaction

•Food service in a restaurant•Hand car washing

•Giving a lecture•Handling routing bank transactions

•Providing public transit•Mass vaccination

•Home carpet cleaning•Landscaping service

•Portrait painting•Counseling

•Haircutting•Performing a surgical operation

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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

4-15

100 Yen Sushi House Layout

Miso and Tea Station

CONVERSATION AREA

CO

NV

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SA

TIO

N A

RE

A

Dishwashing Counter in Back

ENTRANCE

CONVEYOR BELT

TAKE-OUT POSITION

= CHEF

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100 Yen Sushi House Questions

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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COMMUTER CLEANINGA New Venture Proposal

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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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Service BlueprintPHYSICAL Bag Location Accuracy of Bill Clean EVIDENCE CUSTOMER Line of Interaction -------------------------------------------------------------------------------------------------------- STATION CSR Line of Visibility ************************************************************************************** DRIVER OFFICE CSR Line of Internal Interaction ----------------------------------------------------------------------------------------------- CENTRAL CLEANING PLANT

Place Shirts in Bag

Take Bag to

Outlet

Pick up Shirts

Eat Check-out and

Leave

Attach Color Coded Label 6:00-9:00 am

Process Check-out

Deliver Bags to Central Plant

Clean and Press Shirts

Registration System

Count Shirts and Record for Billing

Put on Hangers

Load on Truck Sorted by Location

Pick up Shirts at Plant and Distribute

Sort Shirts for Pickup

3:30-8:30 pm

Bill Customer

Credit Card

Payment Received?

Make Payment

Reminder

Pay at Pickup

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Breakeven Analysis

Fixed Expenses

= (Demand)(Price-Charge)

$13,404 = 20,000 (Price - 0.50)

Price = (13,404 + 10,000)/20,000

= $1.17

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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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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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INTERACTIVE CLASS EXERCISE

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

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Something to ponder A group of alumni, highly established in

their careers, got together to visit their old university professor. Conversation soon turned into complaints about stress in work and life.

Offering his guests coffee, the professor went to the kitchen and returned with a large pot of coffee and an assortment of cups – porcelain, plastic, glass, crystal, some plain looking, some expensive, some exquisite – telling them to help themselves to the coffee.

Something to ponder

When all the students had a cup of coffee in hand, the professor said:

“If you noticed, all the nice looking expensive cups were taken up, leaving behind the plain and cheap ones. While it is normal for you to want only the best for yourselves, that is the source of your problems and stress.”

Something to ponder

“Be assured that the cup itself adds no quality to the coffee. In most cases it is just more expensive and in some cases even hides what we drink.”

“What all of you really wanted was coffee, not the cup, but you consciously went for the best cups… And then you began eyeing each other’s cups.”

Something to ponder

“Now consider this: Life is the coffee; the jobs, money and position in society are the cups. They are just tools to hold and contain Life, and the type of cup we have does not define, nor change the quality of Life we live.

Something to ponder

Sometimes, by concentrating only on the cup, we fail to enjoy the coffee God has provided us.”

God brews the coffee, not the cups… Enjoy your coffee!

CONCLUSIONS

“The happiest people don’t have the best of everything. They just make the best of everything.”

Live simply. Love generously. Care deeply. Speak kindly. Leave the rest to God