New Service Development and Process Design

Learning Objectives Discuss the new service development process. Prepare a blueprint for a service operation. Describe a service process using the dimensions of divergence and complexity. Use the taxonomy of service processes to classify a service operation. Compare and contrast the generic approaches to service system design. Place an example of service automation in it proper category. Discuss the managerial issues associated with the adoption of new technology.

Customer Benefit Package   Customer Benefit Package Hierarchy Level Element Core Good Example Core Service Example Category Business Custom clothier Business hotel   First Core Business suits Room for the night Second Peripheral Good Garment bag Bath robe Peripheral Service Deferred payment plans In house restaurant Third Variant Coffee lounge Airport shuttle   

Levels of Service Innovation Radical Innovations Major Innovation: new service driven by information and computer based technology Start-up Business: new service for existing 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 features of currently offered service Style Changes: modest visible changes in appearances

Technology-Driven Service Innovations Source of Technology Service Example Service Industry Impact Power/energy Jet aircraft Nuclear energy International flight is feasible Less dependence on fossil fuel Facility design Hotel atrium Enclosed sports stadium Feeling of grandeur/spaciousness Year-around use Materials Photochromic glass Synthetic engine oil Energy conservation Fewer oil changes Methods Just-in-time (JIT) Six Sigma Reduce supply-chain inventories Institutionalize quality effort Information E-commerce Satellite TV Increase market to world-wide Alternative to cable TV 3-5

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 3-6

Adoption of New Technology in Services Challenges of Adopting New Technology The Process is the Product Back Office vs Front Office Changes Need for Standardization Readiness to Embrace New Technology

Service Design 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

Customer Value Equation 3-9

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.

Structural Alternatives for a Restaurant LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE TAKE RESERVATION SEAT GUESTS, GIVE MENUS SERVE WATER AND BREAD TAKE ORDERS PREPARE ORDERS Salad (4 choices) Entree (15 choices) Dessert (6 choices) Beverage (6 choices) SERVE ORDERS COLLECT PAYMENT No Reservations Self-seating. Menu on Blackboard Eliminate Customer Fills Out Form 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 Specific Table Selection Recite Menu: Describe Entrees & Specials Assortment of Hot Breads and Hors D’oeuvres At table. Taken Personally by Maltre d’ Individually Prepared at table Expand to 20 Choices: Add Flaming Dishes; Bone Fish at Table; Prepare Sauces at Table Expand to 12 Choices Add Exotic Coffees; Sherbet between Courses; Hand Grind Pepper Choice of Payment. Including House Accounts: Serve Mints

Structural Positioning of Healthcare Services HIGH COMPLEXITY * Hospitals Services * General Practitioner: * Forensic-Testing Lab Diagnosis & Treatment * Diagnostic services only Specialist: * Treatment only LOW DIVERGENCE HIGH DIVERGENCE Outpatient Clinic: Limited * Treatment: e.g. Broken Bones/Minor Burns only * Retailer of Orthopedic Supplies * X-Ray Lab * Medical Counseling LOW COMPLEXITY

Example of Service Blueprinting

Service Blueprinting (Bank Lending Operation Example) Loan application Branch Officer Pay book 30min--1hr. Line of visibility Deny 1 day 2 days 3 days Fail point Customer wait Employee decision === ==== ===== $ 0 $ ==== ===== w w Receive Payment Final payment Decline Notify customer Issue check Confirm F F Verify income data Print payment book Credit check Accept Delinquent Close account Initial screening F Verify payer Confirm Employer Credit bureau F Branch records F Bank accounts F Accounting Data base records F W

Service Blueprint of Luxury Hotel

Taxonomy of Service Processes Low divergence High divergence (standardized service) (customized service) Processing Processing Processing Processing Processing Processing of goods Information of people of goods Information of people Dry Check Auto repair Computer No Cleaning processing Tailoring a programming Customer Restocking Billing for a suit Designing a Contact a vending credit card building machine Ordering Supervision Indirect groceries of a landing customer from a home by an air contact computer controller No Operating Withdrawing Operating Sampling Documenting Driving a customer- a vending cash from an elevator food at a medical rental car service machine an ATM Riding an buffet dinner history Using a worker Assembling escalator Bagging of health club interaction premade groceries Searching for facility (self- furniture information Direct service) in a library Customer Customer Food Giving a Providing Home Portrait Haircutting Contact service service in a lecture public carpet painting Performing worker restaurant Handling transport- cleaning Counseling a surgical interaction Hand car routine bank a tion Landscaping operation washing transactions Providing service mass vaccination

Generic Approaches to Service Design Production-line • Limit Discretion of Personnel • Division of Labor • Substitute Technology for People • Standardize the Service Customer as Coproducer • Substitution of Customer Labor for Provider • Smoothing Service Demand Customer Contact • Degree of Customer Contact • Separation of High and Low Contact Operations Information Empowerment • Employee and Customer

Service Fail-safing Poka-Yokes (A Proactive Approach) Keeping a mistake from becoming a service defect. How can we fail- safe the three Ts? Task Tangibles Treatment

Have we compromised one of the 3 Ts?

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

Service-System Design Matrix Degree of customer/server contact Buffered Permeable Reactive High core (none) system (some) system (much) Low Face-to-face total customization Face-to-face loose specs Sales Opportunity Production Efficiency Face-to-face tight specs Phone Contact Internet & on-site technology Mail contact Low High

Discussion Questions What ethical issues are raised in the promotion of sales during a service transaction? What are some drawbacks of customer participation in the service delivery process? 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.