Chapter 04 New Service Development

McGraw-Hill/Irwin Service 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
Power/energy

Service Example
Jet aircraft Nuclear energy Hotel atrium Enclosed sports stadium Photochromic glass Synthetic engine oil Just-in-time (JIT) Six Sigma

Service Industry Impact

International flight is feasible Less dependence on fossil fuel Feeling of grandeur/spaciousness Year-around use Energy conservation Fewer oil changes Reduce supply-chain inventories Institutionalize quality effort

Facility design

Materials

Methods

Information

E-commerce Satellite TV

Increase market to world-wide Alternative to cable TV

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Service Design Elements

Design Elements Structural Delivery system Facility design Location Capacity planning Managerial Information Quality Service encounter Managing Capacity and Demand Technology, scalability, use of Internet Measurement, design quality, recovery, tools, six-sigma Encounter triad, culture, supply relationships, outsourcing Strategies, yield management, queue management Process structure, service blueprint, strategic positioning Servicescapes, architecture, process flows, layout Geographic demand, site selection, location strategy Strategic role, queuing models, planning criteria Topics

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New Service Development Cycle

Full-scale launch Post-launch review

Full Launch

Enablers

Development
Formulation of new services objective / strategy Idea generation and screening Concept development and testing

People
Service design and testing Process and system design and testing Marketing program design and testing Personnel training Service testing and pilot run Test marketing

Product

Technology
Tools

Systems

Design

Analysis
Business analysis Project authorization 4-8

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

LOWER COMPLEXITY/DIVERGENCE
No Reservations Self-seating. Menu on Blackboard Eliminate Customer Fills Out Form

CURRENT PROCESS
TAKE RESERVATION SEAT GUESTS, GIVE MENUS SERVE WATER AND BREAD TAKE ORDERS

HIGHER COMPLEXITY/DIVERGENCE
Specific Table Selection Recite Menu: Describe Entrees & Specials Assortment of Hot Breads and Hors Doeuvres At table. Taken Personally by Maltre d

Pre-prepared: No Choice Limit to Four Choices Sundae Bar: Self-service Coffee, Tea, Milk only Serve Salad & Entree Together: Bill and Beverage Together Cash only: Pay when Leaving

Salad Bar Entree (6 choices) Dessert (6 choices) Beverage (6 choices) SERVE ORDERS

Salad (4 choices) Expand to 10 Choices: Add Flaming Dishes; Bone Fish at Table Expand to 12 Choices Add Exotic Coffees; Wine list, Liqueurs Separate-courses; Hand Grind Pepper

CASH OR CREDIT CARD

Choice of Payment. Including House Accounts: Serve Mints

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Taxonomy of Service Processes

No Customer Contact Low divergence (standardized service) Processing Processing of goods Information Dry Check Cleaning processing Restocking Billing for a a vending credit card machine Ordering groceries from a home computer No customerservice worker interaction (selfservice) Customer service worker interaction Operating a vending machine Assembling premade furniture Food service in a restaurant Hand car washing Withdrawing cash from an ATM Processing of people High divergence (customized service) Processing Processing of goods Information Auto repair Computer Tailoring a programming suit Designing a building Supervision of a landing by an air controller Operating an elevator Riding an escalator Sampling food at a buffet dinner Bagging of groceries Documenting medical history Searching for information in a library Portrait painting Counseling Driving a rental car Using a health club facility Processing of people

Indirect customer contact

Direct Customer Contact

Giving a lecture Handling routine bank transactions

Providing Home public carpet transit cleaning Mass Landscaping vaccination service

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

Re sults Pr oduced Pr ocessQuality Value Pr ice CostsofAcq uiringtheService

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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.

2.

3.

4.

Prepare a service blueprint for the 100 Yen Sushi House. What features differentiate 100 Yen Sushi House and how do they create a competitive advantage? How has the 100 Yen Sushi House incorporated the just-in-time system into its operations? Suggest other services that could adopt the 100 Yen Sushi House service delivery concept.
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100 Yen Sushi House Layout

Dishwashing Counter in Back
CONVERSATION AREA Miso and Tea Station CONVEYOR BELT CONVERSATION AREA

TAKE-OUT POSITION ENTRANCE = CHEF

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Commuter Cleaning - New Venture Proposal

1.

2.

3.

4.

Prepare a service blueprint for Commuter Cleaning. What generic approach to service design is illustrated by Commuter Cleaning, and what competitive advantage does this offer? Using the data in Table 4.7 calculate a breakeven 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. Critique the business concept, and make recommendations for improvement.
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Golfsmith
1. 2.

3.

Prepare a service blueprint for Golfsmith. What generic approach to service design does Golfsmith illustrate and what competitive advantages does this design offer? 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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