New Service Development Design service delivery system with features to differentiate Chap. 03

Distribution of GDP in the US Economy ProductServices Physical Information 6% 10% 31% 53% 37% 63% 84% 16% D BA C A = Physical Product, B= Physical Service, C= Digital Product, D= Information Service 3-2

Sources of Service Sector Growth – Information technology – The Internet as a service enabler – Innovation – Changing demographics

– Information technology Ubiquitous computing – Smart phones Personal banking – Transfer of fund – Payment of bill – Managing personal finance Healthcare – Off shore radiologist

– The Internet as a service enabler – Wireless connectivity, web 2.0, social networking Cost-effective tool to connect customers Push information to customers

– Innovation New service developed thru innovation – A poor adhesive (3M, Post-it) – DVD players (Video rental) – Internet streaming (Netflex) – WWW (e-commerce, social networking, …) Unexpected events – The Arab Spring uprising (security evacuation insurance) Observant contact employee – Hotel concierge observe high demand for taxi » Airport shuttle bus service

Exploit information available – Sales from auto parts stores » Frequent failures » Performance enhancements Service lab for testing new service – Burger King » Store replica in a warehouse in Miami – Facebook » Shopping notifications

– Changing demographics French revolution – Jobless chefs of dispossessed nobility – Open their own restaurants Aging population – Healthcare – Retirement (pension, 401K)

Innovation in Services Basic Research: Pursue a planned search for new knowledge regardless of possible application. Applied Research: Gaining new knowledge that will meet a specific need. Development: Apply knowledge to problems to improve a current service. 3-9

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 3-10

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 airline boarding kiosk). Style Changes: modest visible changes in appearances. 3-11

New Service Development Cycle People Technology Systems Product Full Launch Development Design Analysis Organizational Context Teams Tools Enablers Formulation of new services objective / strategy Idea generation and screening Concept development and testing Business analysis Project authorization Full-scale launch Post-launch review Service design and testing Process and system design and testing Marketing program design and testing Personnel training Service testing and pilot run Test marketing 3-12

Technology-Driven Service Innovations Source of Technology Service ExampleService Industry Impact Power/energyJet aircraft Nuclear energy International flight is feasible Less dependence on fossil fuel Facility designHotel atrium Enclosed sports stadium Feeling of grandeur/spaciousness Year-around use MaterialsPhotochromic glass Synthetic engine oil Energy conservation Fewer oil changes MethodsJust-in-time (JIT) Six Sigma Reduce supply-chain inventories Institutionalize quality effort InformationE-commerce Satellite TV Increase market to world-wide Alternative to cable TV 3-13

Adoption of New Technology in Services Challenges of Adopting New Technology – The Process is the Product Customers acceptance – Loss of personal attention – Learn new skills – Forgo some benefits Internal customers (Front office) – Retraining, (word processing vs typewriter) Back office – Full benefits until standard accepted industry-wide » So many browsers, security settings 3-14

Readiness to Embrace New Technology – Technology readiness Person’s propensity to embrace and use new technology – Evaluate customers’ level of readiness Airport check-in Kiosk – Employee’s readiness Implementation of ERP

Service Design Elements Design ElementsTopics Structural Delivery systemProcess structure, service blueprint, strategic positioning Facility designServicescapes, architecture, process flows, layout LocationGeographic demand, site selection, location strategy Capacity planningStrategic role, queuing models, planning criteria Managerial InformationTechnology, scalability, use of Internet QualityMeasurement, design quality, recovery, tools, six-sigma Service encounterEncounter triad, culture, supply relationships, outsourcing Managing capacity and demand Strategies, yield management, queue management 3-16

Customer Value Equation 3-17

Strategic Positioning Through Process Structure Degree of Complexity: – Measured by the number of steps in the service blueprint, – e.g., a clinic is less complex than a general hospital Degree of Divergence: – Amount of discretion permitted the server to customize the service, – e.g., the activities of an attorney contrasted with those of a paralegal 3-18

Structural Alternatives for a Restaurant 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 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 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 LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE 3-19

Service Blueprint of Luxury Hotel F = Possible Fail Point F FF F 3-20

10 minutes exercise Service blueprint – Pick your own service process – Design the service

Taxonomy for service process design – Degree of divergence Low divergence: high volume with narrowly defined and focused service – Opportunity to substitute automation for labor High divergence: more flexibility and judgment are required – Customized service (e.g. consulting) – require high level of technical and analytic skills

Taxonomy of Service Processes – Object of the service process Goods – Provided by the customer (auto repairs) » Property must be secure from damage or loss – Provided by the service firm (facilitating goods) » Stock level and quality is concerned » E.g. MacDonald’s food items Information – Back office activities – Customer service: information is communicated – Consulting: information is directly interact between client & service

People – Physical change: haircut – Geographic change: bus ride – Interpersonal and technical skill needed

– Type of customer contact Customer present & interact directly – Process of people » Training in interpersonal skills » Facility issues of location, layout, and design » Managing queue Contact maybe indirect (via Internet) – Self service » ATM » Boarding pass kiosk » Customer is willing to learn how to interact with machine

No customer contact – Manufacturing style management – Batch process, job shop

Taxonomy of Service Processes 3-27

Generic Approaches to Service Design Production-line routine service control environment to ensure consistent quality & efficiency Customer as Coproducer encourage customers to take an active role Customer Contact Separation of High and Low Contact Operations low-contact to be designed as a technical core Information Empowerment IT is a fundamental part of our daily life IT can empower customer and employee 3-28

Production-line approach Manufacturing systems are designed with control of process Output is machine paced Jobs are designed with specific tasks to perform Tools and machines are provided to improve efficiency – McDonald’s Hamburger patties are measured and prepackaged French fries …

– Limited discretionary action of personnel Employee is given well-defined task to perform with tool to accomplish them Standardization & quality are the hallmarks – Consistency in meeting specification Customer can expect the same level of service from all franchises – Division of labor Job can be broken down into groups of simple tasks Permit specialization of labor skills Low pay & low skill employment

– Substitution of technology for people ATM vs teller RFID vs Highway toll system

– Service standardization Limited menu items guarantees a fast hamburger Routine process, well-defined tasks, easy to control

Customers as coproducer Customer present in the service process can support the competitive strategy of cost leadership with possible customization Beta version of software development Productivity gains are achieved by division of labor – Self service Low cost airlines – Automatic check-in kiosk, sell e-ticket over the Internet Customer controlled quality, e.g. Salad bar.

– Smoothing service demand – Service capacity is a time-perishable commodity – Whenever server is idle, service capacity is permanent loss – The nature of demand of a service is clearly RANDOM » The hour of the day » The day of the week » The season of the year

Smoothing demand will improve service productivity – Adjust service demand to match availability of service » Appointment & reservation Customers can avoid of waiting » Incentive to promote off-peak hours – If attempt to smooth demand fail » Initiate queue management Great utilization of service Customer’s frustration or Disney’s FastPass create more sale opportunity

– Customer-generated content The Internet has opened a new opportunity for customer coproduction – Wikipedia – Social media

Customer contact approach Manufacturing – use inventory to decouple customer demand to achieve efficiency – use JIT to meet variation of demand and lower inventory Service delivery separate high- and low-contacts operation – Give customers a personalization feel – Reach efficiency for back office operation

– Degree of customer contact Service quality is perceived by the customer experiences Lower the percentage of the physical presence of the customer in the system – 網路選課 – DIY option

– Separation of high- and low-contact operations High-contact operations require employee with excellent interpersonal skills Low-contact operations separate from customers physically Airlines – Reservation staff and attendants » Wear uniform and receive training – Baggage handlers and aircraft maintenance » Hardly seen by customers

– Sales opportunity and service delivery options

Information empowerment – IT touch our life in all areas. – Service could not survive without use of IT More than a convenient way Empower both employees and customers

– Employee empowerment Files age – Customer order files – Suppliers files – Inventory files – Interact WITHIN functional boundaries Relational Database age – Customer service agent can check inventory – Airlines agent can rebook flights at any alliance airlines – Interact ACROSS functional boundaries

– Customer empowerment Customers no longer confined to their local service – MIT open courses Customer take an active part of their service – Tracking package – Supermarket check out – Get information of their travel destinations

Intellectual property – New service design need protection from competitors copying Inventions (artificial heart) Trademark (McDonald’s golden arches) Industrial design right (Starbucks store ambience) Trade secret (KFC recipe) – Ten things google has found to be true (p.82)

Mini cases – Case 3.1, 100 yen sushi house – Case 3.3, Amazon.com (p. 86)