Welcome to Service Management Chapter 01 Role of Services in an Economy James Fitzsimmons Seay Professor of Business Emeritus University of Texas at Austin McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Learning Objectives Identify traits that all services have in common. Discuss the central role of services in an economy. Identify and differentiate the five stages of economic activity. Describe the features of preindustrial, industrial, and postindustrial societies. Describe the features of the new service economy. Contrast the push vs. pull theories of innovation. Identify the sources of service sector growth. 1-2

Service Definitions Services are deeds, processes, and performances. Valarie Zeithaml & Mary Jo Bitner A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer. James Fitzsimmons 1-3

Definition of Service Firms Service enterprises are organizations that facilitate the production and distribution of goods, support other firms in meeting their goals, and add value to our personal lives. James Fitzsimmons 1-4

Role of Services in an Economy FINANCIAL SERVICES · Financing · Leasing · Insurance INFRASTRUCTURE SERVICE · Communications · Transportation · Utilities · Banking PERSONAL SERVICES · Healthcare · Restaurants · Hotels MANUFACTURING Services inside company: · Finance · Accounting · Legal · R&D and design DISTRIBUTION SERVICES · Wholesaling · Retailing · Repairing CONSUMER (Self-service) BUSINESS SERVICES · Consulting · Auditing · Advertising · Waste disposal GOVERNMENT SERVICES · Military · Education · Judicial · Police and fire protection 1-5

Percent Employment in Services Top Ten Postindustrial Nations Country 1965 1975 1985 1995 2005 United States 59.5 66.4 70.0 74.1 78.6 United Kingdom 51.3 58.3 64.1 71.4 77.0 The Netherlands 52.5 60.9 68.3 73.4 76.5 Sweden 46.5 57.7 66.1 71.5 76.3 Canada 57.8 65.8 70.6 74.8 76.0 Australia 54.6 61.5 68.4 73.1 75.8 France 43.9 51.9 61.4 Japan 44.8 52.0 57.0 68.6 Germany 41.8 n/a 51.6 60.8 68.5 Italy 36.5 44.0 55.3 62.2 65.5 1-6

Trends in U.S. Employment by Sector 1-7

Distribution of GDP in the US Economy Product Services Physical Information 6% 10% 31% 53% 37% 63% 84% 16% D B A C 1-8

Stages of Economic Development Pre- Use of Standard dominant Human Unit of of Living Society Game Activity Labor Social Life Measure Structure Technology Pre- Against Agriculture Raw Extended Sub- Routine Simple hand Industrial Nature Mining muscle household sistence Traditional tools power Authoritative Industrial Against Goods Machine Individual Quantity Bureaucratic Machines fabricated production tending of goods Hierarchical nature Post- Among Services Artistic Community Quality of Inter- Information industrial Persons Creative life in terms dependent Intellectual health, education, recreation 1-9

Economic Evolution Economy Agrarian Industrial Service Experience Offering Food Packaged goods Commodity service Consumer services Business services Function Extract Make Deliver Stage Co-create Nature Fungible Tangible Intangible Memorable Effectual Attribute Natural Standardized Customized Personal Growth Method of Supply Stored in bulk Inventoried Delivered on demand Revealed over time Sustained over time Seller Trader Producer Provider Stager Collaborator Buyer Market Customer Client Guest Expectation Quantity Features Benefits Sensations Capability 1-10

The Four Realms of an Experience 1-11

Experience Design Principles Theme the Experience (Forum shops) Harmonize Impressions with Positive Cues (O’Hare airport parking garage) Eliminate Negative Cues (Cinemark talking trash containers) Mix in Memorabilia (Hard Rock T-shirts) Engage all Five Senses (Mist in Rainforest) 1-12

Source of Service Sector Growth Information Technology (e.g. Internet) Innovation Push theory (e.g. Post-it) Pull theory (e.g. Cash Management) Services derived from products (e.g. Netflix) Exploiting information (e.g. Auto part sales) Difficulty of testing service prototypes Changing Demographics Aging of the population Two-income families Growth in number of single people Home as sanctuary 1-13

Typology of Services in the 21st Century Core Experience Essential Feature Examples Creative Present ideas Advertising, theater Enabling Act as intermediary Transportation, communications Experiential Presence of customer Massage, theme park Extending Extend and maintain Warranty, health check Entrusted Contractual agreement Service/repair, portfolio mgt. Information Access to information Internet search engine Innovation Facilitate new concepts R&D services, product testing Problem solving Access to specialists Consultants, counseling Quality of life Improve well-being Healthcare, recreation, tourism Regulation Establish rules and regulations Environment, legal, patents 1-14

Discussion Topics Illustrate how the type of work he or she does influences a person’s lifestyle. For example, contrast a farmer, a factory worker, and a school teacher. Is it possible for an economy to be based entirely on services? What is the value of self-service in an economy? 1-15

Interactive Class Exercise The class breaks into small groups. Each group identifies service firms that should be listed in the top Fortune 100 and places them in rank order of estimated annual revenue. http://www.fortune.com/lists/F500/index.html 1-16