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.
4-2
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.
4-3
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?
4-4
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.
4-5
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)
4-6
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
4-7
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
4-8
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
4-9
Service Blueprint of Luxury Hotel
4-10
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.
4-11
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
4-12
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
4-13
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
4-14
Customer Value Equation
erviceuiringtheSCostsofAcqice
tyocessQualioducedsultsValue
Pr
PrPrRe
4-15
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
4-16
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.
4-17
COMMUTER CLEANINGA New Venture Proposal
4-18
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.
4-19
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
4-20
Breakeven Analysis
Fixed Expenses
= (Demand)(Price-Charge)
$13,404 = 20,000 (Price - 0.50)
Price = (13,404 + 10,000)/20,000
= $1.17
4-21
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?
4-22
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?
4-23
INTERACTIVE CLASS EXERCISE
The class breaks into small groups and prepares a service blueprint for Village Volvo.
4-24
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
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