Service Strategy

The Customer Centred View

The ServiceStrategy

ThePeople

TheSystems

The Customer

Strategic Planning Process for Services

• Strategic Positioning– Set target market– Five-forces or core competencies– Decisions: Mission, goals, objectives

• Service strategy– Service concept, operating system, service delivery system– Competitive priorities, order winners and qualifiers– Decisions: location, facility size, type and number capacity,

inventory• Tactical execution

– Managing day-to-day operations– Decisions: supplier selection, order size and timing, staffing levels

Strategic Positioning

• Defining the service market– Present and potential customers

• Segmentation• Cannot be everything for everyone but be ‘everything

for a select few’.

– Competitors who satisfy similar or different needs

• direct, indirect or substitute

Strategic Positioning

• Industry and competitor analysis approach– Porter’s five forces– Generic strategies

External Internal

Strategy Step 1 Five Forces analysis

Step 2 Design operating system

Execution Step 3a Manage interaction with external entities like supplier

Step 3b Manage internal operations to meet objectives of operating system design

Strategic Positioning

• Core Competence approach– Resource based view– Eg Southwest airlines – manages time airplane is on ground between

flights- more flights per plane per day- fewer planes – less cost

External Internal

Strategy Step 3 Determine markets to be served by core competencies

Step 2 Determine core competence of the organization

Execution Step 4a Manage interaction with external entities like supplier

Step 1 Scan operating system for potential competencies

Step 4b Manage internal operations to meet objectives of operating system design

Service Strategy Capacity Capabilities

• Process-based – Capabilities derived from activities that transform material or

information and provide advantages on dimensions of cost and quality

• Systems-based – Operating capabilities that are broad-based involving the entire

operating system and provide advantages of short lead times and customize on demand

• Organization-based– Organizational ability to master/implement (learn) new

technologies, faster new plant/product introductions– These capabilities are more difficult to replicate thus provide a

strong operations-based competitive advantage

Service Strategy

• Strategy-System integration– Consistency between target segment and service concept– Consistency between service concept and operating

strategy– Consistency between operating strategy and delivery

system

Service concept

Target Segment Delivery System

Operating strategy

CONSISTENCY

Service Strategy

• Basic Elements1. Design the service concept or the main offer of

the firm2. Design the operating systems and strategy of the

firm (marketing, finance, HR) that enable delivery of the service concept or offer

3. Manage the service delivery system, which describes the course of action during various service encounters

Service Strategy

• Service concept– What business are we in?– Affects customers, employees and other

stakeholders– Broad enough to enable extension, but not too

broad to lose focus– Define outcomes and benefits to customers

Service Strategy

• Operating systems and strategy– Plans, policies, coordination, blueprints, process

and execution– Measures and systems that will be used to

control cost and quality

Service Strategy

• Service delivery system– Facilities and their layout– Processes for delivering the service– Operating capacity– Equipments used– Technology– Job profile and design– Quality management systems– Roles for customer and service providers in the

service encounter

Strategic Service Concept• System Elements to achieve the strategic objectives

– Structural• Delivery system (front office, back office automation, customer participation)• Facility design (size, aesthetics, layout)• Location (customer demographics, single or multiple sites, competition, site

characteristics)• Capacity planning (managing queues, number of servers, accommodating average

or peak demand)

– Managerial• Service encounter (service culture, motivation, selection and training, employee

empowerment)• Quality (measurement, monitoring, expectations, perceptions, service guarantee)• Managing capacity and demand (strategies for altering demand, strategies for

controlling supply, queue management)• Information (competitive resource, data collection)

Competitive Service Strategies (Overall Cost Leadership)

• Seeking Out Low-cost Customers• Standardizing a Custom Service• Reducing the Personal Element in Service

Delivery• Taking Service Operations Off-line

Competitive Service Strategies (Differentiation)

• Making the Intangible Tangible• Customizing the Standard Product• Reducing Perceived Risk• Giving Attention to Personnel Training• Controlling Quality• Note: Differentiation in service means being unique in

brand image, technology use, features, or reputation for customer service.

Competitive Service Strategies (Focus)

• Buyer Group: (e.g. military officers, students) • Service Offered: (e.g. Specialised hospital)• Geographic Region: (Regional TV Channels)

Competitive Priorities- The Edge

• Important Operations Question: Will you compete on– Cost?– Quality?– Time?– Flexibility?

All of the above? Some? Tradeoffs?

Competitive Capabilities

• Competitive Capabilities are cost, quality, time and flexibility dimensions of competitive priorities that a process or value chain actually possesses and is able to deliver.

Competitive Capabilities

• Low Cost means delivering a service or product at the lowest possible cost to the satisfaction of the customer.

• Eg. Southwest Airlines, Walmart• Strategy Elements

– High Volume - Low Variety – Efficient Operations

• Economies of Scale

– Low Input Cost

Quality as a Competitive Capability

• Top Quality: Delivering an outstanding service or product.– Considerable interaction with the customers may be

required to determine what that means.• Consistent Quality: Producing services or products

that meet design specifications on a consistent basis. – Low Volume - High Variety– Customization– High Quality Inputs, Including Labor– First Movers– Location and other assets that cannot be copied

Time as a Competitive Capability• Delivery Speed is quickly filling a customer’s order.

– Lead Time is the time between receipt of an order and filling the order.

• On-Time Delivery means meeting the delivery time promises.• Development Speed is quickly introducing a new service or

product.• Time-Based Competition is a strategy that focuses on

development speed and delivery speed.– Eg. CNN, FedEx

• Strategy Elements– Streamlined Operations– Execution Quality / Error-proof Delivery

Flexibility as a Competitive Capability

• Customization means satisfying the unique needs of each customer by changing the service or product designs.

• quick adaptability of processes

• Variety involves handling a wide assortment of services or products efficiently.

• Volume Flexibility requires accelerating or decelerating the rate of production quickly to handle large fluctuations in demand.

• Fast Change of Production Mix• Fast New Model / Variety Introduction

The Need for Trade-offs• Decisions must emphasise priorities that support

business strategy• Decisions require trade offs. It is usually not going to be

possible to be the best in the market on all the priorities.• For example, if we reduce costs by reducing product

quality inspections, we might reduce product quality. • Generally low-cost strategy is not compatible with

flexibility or speed of delivery• High quality and low cost tend to be incompatible• Who determines the winning combination? CUSTOMERS• Current thinking - work to improve all four dimensions

simultaneously

Order Qualifiers and Winners

• Order qualifiers are the basic criteria that permit the firm’s products to be considered as candidates for purchase by customers– e.g. Must have excellent quality since everyone expects it

• Order winners are the criteria that differentiate the products and services of one firm from another– e.g. Southwest Airlines competes on cost

McDonald’s competes on consistency and costFedEx competes on speed

Core Services

• Core services are basic things that customers want from products they purchase

Core Services Performance Objectives

Operations ManagementFlexibility

Quality

Speed

Price (or cost Reduction)

Value-Added Services

• Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way

Value-Added Service Categories

OperationsManagement

Information

Problem Solving

Sales Support

Field Support

Four Stages of Service Firm Competitiveness

• Stage I. Available for Service– Reactive, non-performance-based survival

• Stage II. Journeyman– Firm neither sought nor avoided– Reliable but uninspired operation

• Stage III. Distinctive Competence Achieved– Reputation for meeting customers’ expectations– Customer-focused operations--management support

• Stage IV. World Class Service Delivery– Firm name synonymous with service excellence--focus on delighting

rather than satisfying customers– Continuous learning and improvement of operations

Strategically Planning for Service Growth

Revenue

Entrepreneurial Multi-site rationalization

Decline / Regeneration

Growth Maturity

Multi-site Service Lifecycle• Entrepreneurial stage

– Charismatic, motivating leader– Local marketing and public relations– Require innovation and development of service strategy

• Multi-site rationalization– Select a dominant standard for marketing, operations and human resources– Detailed procedures need to be set up

• Growth– Selling the service to a wider consumer audience– Investors/franchisees

• Maturity– Maintaining market position

• Decline/ Regeneration– Revise the service concept

Industry Roll-ups

• Same as merger/acquisition• Helps to share facilities, (esp. back office

operations) and other value chain activities

Franchising

• Help to grow more rapidly than funding own expansion

• Prevents competitor from copying service concept

• Might be difficult to implement radical changes

Service Profit Chain

Operating Strategy andService Delivery System

ServiceConcept

TargetMarket

Internal External

Loyalty

Productivity& OutputQuality

ServiceQuality

Satisfaction

Capability

ServiceValue

Satis-faction Loyalty

RevenueGrowth

Profit-ability

Workplace designJob designSelection and developmentRewards and recognitionInformation and communicationAdequate “tools” to serve customer

Quality &productivity yieldhigher service quality and lowercost

Attractivevalue … Service designed &delivered tomeet needs

Lifetime value Retention Repeat businessReferrals