Service Strategy BMGMT3101| Service Operation Management

WEEK 2 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Student to give the answers Why do we need strategy? Student to give the answers For business, strategy is an action of what the organization has decided (vision/goals)

HOW TO FOMULATE SERVICE VISION? Before developing an appropriate action plan/strategy the service vision should be formulated. How? Consider the entrepreneur’s idea Target market segments Operating Strategy Delivery system

Sample of vision statement Our vision is to be the world's most dynamic science company, creating sustainable solutions essential to a better, safer and healthier life for people everywhere. (DuPont Vision) Sample of vision statement

Strategic Service Vision Target Market Segments What are common characteristics of important market segments? What dimensions can be used to segment the market, demographic, psychographic? How important are various segments? What needs does each have? How well are these needs being served, in what manner, by whom? 3-6

Strategic Service Vision Service Concept What are important elements of the service to be provided, stated in terms of results produced for customers? How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others? How do customers perceive the service concept? What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed? 3-7

Strategic Service Vision Operating Strategy What are important elements of the strategy: operations, financing, marketing, organization, human resources, control? On which will the most effort be concentrated? Where will investments be made? How will quality and cost be controlled: measures, incentives, rewards? What results will be expected versus competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers? 3-8

Strategic Service Vision Service Delivery System What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures? What capacity does it provide, normally, at peak levels? To what extent does it, help insure quality standards, differentiate the service from competition, provide barriers to entry by competitors? 3-9

Southwest Airlines Strategic Service Vision Service Delivery System Operating Strategy Service Concept Target Market Segment • Fun cabin atmosphere to differentiate service • Use only Boeing 737 aircraft to control maintenance and operating costs • Hire cabin crew based on attitude • Quick turnaround at gate results in high utilization of aircraft • No assigned seating rewards punctuality and promotes on-time performance • Short flights with frequent departures • Serve peanuts and soft drinks only • Use of inner-city or low traffic airports avoids congestion • Carry-on luggage • State of Texas residents • Business traveler who drives because of inadequate service • Inexpensive family travel on weekends 3-10

CLASS ACTIVITY : LKW University Service Delivery System Operating Strategy Service Concept Target Market Segment •

Consideration : Competitive Environment of Services Overall entry barriers – low (not patentable, not capital intensive, innovation easily copied) Economies of Scale - minimal Transportation Costs – high Sales Fluctuations – high (demand varies) Dealing with Buyers or Suppliers – no power Product Substitutions – product innovation can be the substitute for services Customer Loyalty – high (use personalize service) Exit Barriers – low (despite low profit, service may be operated) 3-12

Competitive Service Generic Strategies (Overall Cost Leadership) Seeking Out Low-cost Customers Standardizing a Custom Service Reducing the Personal Element in Service Delivery (promote self-service) Reducing Network Costs (hub and spoke) Taking Service Operations Off-line Competitive Service Generic Strategies (Overall Cost Leadership) 3-13

Competitive Service Generic Strategies (Differentiation) Making the Intangible Tangible (memorable) Customizing the Standard Product 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. 3-14

Customer Criteria for Selecting a Service Provider Availability (24 hour ATM) Convenience (Site location) Dependability (On-time performance) Personalization (Know customer’s name) Price (Quality surrogate) Quality (Perceptions important) Reputation (Word-of-mouth) Safety (Customer well-being) Speed (Avoid excessive waiting) 3-15

Decision on Winning Customers in the Marketplace. How? Service Qualifier: Attain certain level for each service – competitive dimensions Service Winner: The competitive dimension used to make the final choice among competitors. Example is price. Service Loser: Failure to deliver at or above the expected level for a competitive dimension. Examples are failure to repair auto (dependability), rude treatment (personalization) or late delivery of package (speed). 3-16

Competitive Role of Information in Services IT helps to define competitive strategy Creation of barriers to entry Revenue generation Database asset Productivity enhancement 3-17

Stages in Service Firm Competitiveness To be competitive and to strategies service operation knowing the stages of development for service delivery is important 3-18

Stages in Service Firm Competitiveness Stage 1: Availability for service It is a sheltered stage where firms are noncompetitive, little improvements needed, workers require direct supervision. Ex: government services Stage 2: Journeyman A stage with massive competition and constantly forced to re-evaluate its delivery system Stage 3: Distinctive Competence Achieved Stage 4: World-Class Service Delivery 3-19

End of Lecture