1 SERVICE OPERATIONS MANAGEMENT Recognize the service component in an organization Understand the service encounter Understand the customer factor in service success Understand how to formulate a service strategy Understand how to plan/design a service organization Understand how to operate/manage a service organization Learn OM tools and techniques useful in service operations management

2 SERVICES IN THE U.S. ECONOMY Difference between goods and services –Intangible; Contact level; Subjectivity of customer Dependency of manufacturing on services Growth of service sector –% of total employment: 1940: 45%; 2000: 75% Reasons for growth –Evolution after industrial growth; IT innovations; social trends Movement towards an “experience economy” –Economy: From Agrarian to Industrial to Service to Experience –Examples - Shopping: Stand alone store vs. Mall vs. Forum Shops –What makes up “experience” ?

3 THE NATURE OF SERVICES Service classifications; why classify services ? Degree of interaction Degree of customization Service process matrix: Service factory, Service shop, Mass service, Professional service Service process affects many decisions: marketing, worker related factors, cost, quality, technology, policies.

4 UNDERSTANDING THE SERVICE ENCOUNTER The Service encounter triad –Service organization; Contact personnel; Customer –Classifying encounters by dominating component –Roles and issues of the three components Characteristics of service operations –Customer participation, Simultaneity, Perishability, Intangibility, Variation from one customer/server to another customer/server

5 UNDERSTANDING THE SERVICE ENCOUNTER Understanding/classifying the service encounter –Directed at customer (body/mind), possessions, assets –Membership v. no relationship –Degree of customization –Servers use of individual judgment –Demand-supply variations –Customer-service outlet relationships What is in a service package ? –Supporting facility, Facilitating goods, Information, Explicit services, Implicit services

6 GLOBALIZATION OF SERVICES Global expansion of services. Reasons for growth, advantages. Typical domestic growth strategies Generic international strategies Factors affecting globalizing decisions –Host govt. policies, Market segments, Labor markets, Worker norms, Management practices, Customer factors, Cultural transferability, Global service strategies –Multi country expansion, importing customers, following customers, service off-shoring, Journal article readings

7 CUSTOMER AS FOCUS OF THE SERVICE The service encounter triad - again Recognition of customer satisfaction as quality –Baldrige, ASCI, TQM Customer role in the “service profit chain” Customer expectations/attitudes and perceptions Dimensions of service quality –Reliability, Responsiveness, Assurance, Empathy, Tangibles –Trends/other factors

8 CUSTOMER AS FOCUS OF THE SERVICE The Gap Model Measuring service quality - SERVQUAL, Other. Implications for designing facilities, facilitating goods, explicit-implicit services and information. Design tools: QFD ; Benchmarking, Journal article readings

9 FORMULATING A SERVICE STRATEGY Strategy Formulation Process –Environment analysis – SWOT –Analyzing the competition –Corporate level strategy –Business level strategy = Competitive service strategies Cost Leadership Differentiation Focus Cost Leadership –Focus on customers seeking low cost version of the service –Standardize a customized services –Technology use – automation –Network logistics –Off line services

10 FORMULATING A SERVICE STRATEGY Differentiation –Higher quality services; What is higher quality ? –Increase availability – access, hours, on-line access, multiple locations, speed, increase service staff, convenience, dependability, security and safety –Provide variety; Customization Focus –Goes with Cost Leadership or Differentiation Role of information in service strategy –Influence expectations and perceptions –Making the intangible more tangible –Reducing uncertainty and perceived risk Service strategy and Service process – Volume/Variety considerations Implementing service strategy – policies, programs and budgets

11 SERVICE DESIGN Three areas designed together – Service, Marketing and HR Service package to design –Explicit services, implicit services, facilities, facilitating goods, information Design process Explicit services –Contact level, Capacity planning and management, Demand management, Equipment – staff balance (automation; front-office office balance), Customer participation, Technology/self-services Implicit services –Information planning, Waiting times/appointment systems, Complaints management, Call center design, Service recovery, CLAS, Service standards, Supplier management

12 SERVICE DESIGN Facilities –Locating service facilities –Commercial service facilities; public facilities –Layout; work/people flow. Balancing flow. Minimizing distances –Physical surroundings; Servicescapes Facilitating goods Documentation. Process charts, Cause-effect diagrams Designing e-services

13 Service Marketing Marketing designed with operations (and human resources) Consumer decision process in services –Pre-purchase stage considerations – Perception of risk: Uncertainty –Risk and information Search attributes: can be determined prior to purchase Experience attributes: during and after purchase Credence attributes: uncertainty even after purchase Sources of information - Consumption stage considerations: Dimensions of service quality –Post service considerations: SERVQUAL model –Retention of service customers Switching: Reasons for switching v. Costs of switching Frequency marketing; Relationship marketing

14 Service Marketing Service communication strategies –Company service strategy: cost leadership, differentiation, focus –Communication v. type of service (service process matrix) –Problems created by intangibility: tangiblization –Managing expectations: promise what is possible –Word of mouth communication networks –Reduce fears about service and its variations –Focus on service quality dimensions Other considerations in communications about services –Physical facilities and facilitating goods –Location, layout and waiting times/facilities

15 Service Marketing Pricing services –Customer perception of value of a service: value v. cost –Customer perception of price as an indicator of quality –Demand for services is less price elastic –Service price: difficulties for customer to understand, uncertainty of, relationship to trust –Comparing prices between competitors is more difficult in services (for customers) –Cost plus method of pricing is difficult in services –Satisfaction based pricing – service guarantees –Relationship pricing in services –Price bundling is more effective in services –Pricing and capacity planning (yield management for identifiable and sizable segments) –Legal considerations in service pricing

16 HRM in Services Service encounter triad: Contact personnel is a component Service process matrix: employee contact level, customization and discretion according to service process. Service profit chain: links service value, customer satisfaction with employee satisfaction, loyalty and retention. TQM: HRM is one of the seven categories of measurement in Baldrige Award.

17 HRM in Services The cycle of capability –Careful selection Characteristics required of service employees Selection methods –Training and developing service employees Training content and methods –Work and systems design Work facilitation Work design principles Information systems design Management coordination of supporting services

18 HRM in Services The cycle of capability –Empowerment Principles of service employee empowerment –Evaluation of service employees –Rewards and benefits –Participation and involvement –Employee satisfaction measurement –Organization structure for services –Corporate culture for excellent services