New Service Development McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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. 4-2

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. 4-3

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. 4-4

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 4-5

New Service Development Cycle Full-scale launch Post-launch review Full Launch Development Enablers Formulation of new services objective / strategy Idea generation and screening Concept development and testing Organizational Context People Service design and testing Process and system design and testing Marketing program Personnel training Service testing and pilot run Test marketing Teams Product Technology Systems Tools Analysis Design Business analysis Project authorization 4-6

Service Blueprint of Luxury Hotel 4-7

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. 4-8

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 Salad Bar Entree (6 choices) Dessert (6 choices) Beverage (6 choices) SERVE ORDERS CASH OR CREDIT CARD 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’ 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 Choice of Payment. Including House Accounts: Serve Mints 4-9

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 4-10

Customer Value Equation 4-11

COMMUTER CLEANING A New Venture Proposal 4-12

Commuter Cleaning: New Venture Proposal 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 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. Critique the business concept, and make recommendations for improvement. 4-13

Service Blueprint 4-14

Breakeven Analysis Fixed Expenses = (Demand)(Price-Charge) $13,404 = (13,404 + 10,000)/20,000 = $1.17 4-15