The Service Economy 服務經濟 Chap. 1

Greatest labor migration since Industrial revolution Nation% of World Labor % Agri % Goods % Services China India USA Indonesia Brazil Russia Japan Nigeria Bangladesh Germany

Service operations management techniques – Service environments Customers are present in the system Co-create values with customers – Traditional manufacturing

Service definitions – an activity or series of activities of more or less intangible nature – normally but not necessarily, take place in interactions between customer and service provider – outcomes are provided as solutions to customers problems

Role of Services in an Economy INFRASTRUCTURE SERVICE · Communications · Transportation · Utilities · Banking PERSONAL SERVICES · Healthcare · Restaurants · Hotels CONSUMER (Self-service) GOVERNMENT SERVICES · Military · Education · Judicial · Police and fire protection DISTRIBUTION SERVICES · Wholesaling · Retailing · Repairing FINANCIAL SERVICES · Financing · Leasing · Insurance MANUFACTURING Services inside company: · Finance · Accounting · Legal · R&D and design BUSINESS SERVICES · Consulting · Auditing · Advertising · Waste disposal

Servitization ( 服務科學 ) – Selling solutions rather than products – Products are platform to deliver a service Automobile manufacturers – Financing and/or leasing automobile Otis Elevator – After sale maintenance contracts Rolls-Royce – Selling “power-by-the-hour” – Instead of selling aero engines

Stages of Economic Activity Primary (Extractive): Agriculture, Mining, Fishing, Forestry Secondary (Goods-Producing): Manufacturing, Processing Tertiary (Domestic Services): Restaurants, Hotels, Laundry, Maintenance Quaternary (Trade and Commerce): Transportation, Communications, Retailing, Finance, Government Quinary (Extending Human Potential): Health, Education, Research, Arts, Recreation

Trends in U.S. Employment by Sector Agriculture: Value from harvesting nature Goods: Value from making a product Services: Value from enhancing the capabilities and interactions among people 2012 Year Percent

Features of pre-, industrial, post- society Pre- Use of Standard dominant Human Unit of of Living Society Game Activity Labor Social Life Measure Structure Technology Pre- Against Agriculture Raw Extended Sub- Routine Simple hand Industrial Nature Mining muscle household sistence Traditional tools power Authoritative Industrial Against Goods Machine Individual Quantity Bureaucratic Machines fabricated production tending of goods Hierarchical nature Post- Among Services Artistic Community Quality of Inter- Information industrial Persons Creative life in terms dependent Intellectual health, education, recreation

Nature of the Service Sector Distribution of U.S. Employment,

Service industries are the source of economic leadership – During the past 30 years, most jobs are created in the service sector – Service industries account for 70% of national income (USA) – More flexible in how and where work is performed (telecommuting) – More control over your own time

– Greater opportunity to express yourself through your work – Ability to shape and reshape your life’s work in accordance with your values and interests – (P.10)

Features of Economies EconomyAgrarianIndustrialServiceExperience Economic Offering FoodPackaged goods Commodity service Consumer services Business services FunctionExtractMakeDeliverStageCo-create NatureFungibleTangibleIntangibleMemorableEffectual AttributeNaturalStandardizedCustomizedPersonalGrowth Method of Supply Stored in bulk InventoriedDelivered on demand Revealed over time Sustained over time SellerTraderProducerProviderStagerCollaborator BuyerMarketCustomerClientGuestCollaborator ExpectationQuantityFeaturesBenefitsSensationsCapability

Consumer Service Experience (B2C) Design Principles Theme the Experience ( 主題餐廳 ) Harmonize Impressions with Positive Cues (O’Hare airport parking garage) Eliminate Negative Cues (Cinemark talking trash containers) Mix in Memorabilia (Hard Rock T-shirts) Engage all Five Senses (Mist in Rainforest) 1-14

Business Service Experience (B2B) Design Principles Co-creation of value – Customer is an input to the service process – Customer is a coproducer of the value extracted from the relationship Relationships – Source of innovation and differentiation – Ability to tailor the service offering to customer’s needs

Service capability – Provide service capability to meet fluctuation in demand while retaining quality of service – Quality of service is measured primarily from the perspective of the customer

Typology of Services Experiences Core ExperienceEssential FeatureExamples CreativePresent ideasAdvertising, theater EnablingAct as intermediaryTransportation, communications ExperientialPresence of customerMassage, theme park ExtendingExtend and maintainWarranty, health check EntrustedContractual agreementService/repair, portfolio mgt. InformationAccess to informationInternet search engine InnovationFacilitate new conceptsR&D services, product testing Problem solvingAccess to specialistsConsultants, counseling Quality of lifeImprove well-beingHealthcare, recreation, tourism RegulationEstablish rules and regulationsEnvironment, legal, patents

Foundation Premises of Service-Dominant Logic 1. Service is the fundamental basis of exchange. applying competence (knowledge and skills) for the benefits of another party 2. Service delivery process is complex and has many intermediary (e.g. Internet) 3. Goods are distribution mechanisms for service provision. 4. Operant resources are the source of competitive advantage intellectual capital, skills, and knowledge 5. All economies are service economies.

Foundation Premises of Service-Dominant Logic 6. The customer is always a co-creator of value. 7. A service is only a capacity to create value upon customer activation. e.g. a seat on an airplane. 8. Service exchange necessarily must become customer-focused. 9. Value is created when customer integrate and applies resources of the service provider e.g. using PayPal to make a purchase on eBay.

Foundation Premises of Service-Dominant Logic 10. Value is uniquely determined by the customer based on personal needs at the specific time e.g. quick lunch or dinner party in the particular context e.g. alone or in a group as an experience

Distinctive Characteristics of Service Operations Customer participation in the service process – Attention to facility design Front office: Interior decorating, furnishing, layout, noise, and color Back office: Open back office to promote confidence in the service – Restaurant provides a view of kitchen – Auto repairs bays can be observed through windows

– Customer play an active part Knowledge, experience, motivation, and even the honesty of the customer all directly affect service performance – The popularity of supermarkets and discount stores is based on customers are willing to assume an active role – The education of a student is determined largely by the student’s own effort and contributions

– Customer as temporary employee Opportunity for co-production Fast food restaurants – Customer place order from a limited menu – Clean their table after the meal Customer expect – Fast service & less expensive meals Service provider benefits – Fewer personnel required – Labor provided just in time

Simultaneity Services are created and consumed simultaneously – Closed system: manufacturing Use inventory to absorb the fluctuation of demand Factory can operate at a constant level of output – Open system: service Demand variations directly transmit to the system Customers waits or queue Opportunity for personal selling

Perishability Opportunity loss of idle capacity – An empty airline seat – An unoccupied hotel room – Demand variation considerably Lunch between noon to 1 Theme park peak during summer

– Options to manage time-perishable capacity Smooth demand by – Using reservation or appointments – Provide price incentives – Demarketing peak time Adjust service capacity by – Using part time help – Schedule work shifts according demand forecast – Increase the customer self-service content Allow customer to wait

Intangibility Service is idea and concept; product is thing. – No patent protection To secure the benefits of novel service concept – Expand extremely rapid and preempt any competitors – Franchising » Harvard business school, case study » 7-11 » Costco » 同款、不同師傅

– Challenge for customers No opportunity to test service before buying – Rely on reputation of service provider Government consumers protection – Registration, licensing, regulation – GMP – AASCB – Drawbacks » Stifling innovation, raising barriers to entry, reducing competition

Heterogeneity Results of service delivery system varies from customer to customer – Service is intangible – Customer co-production Create more satisfying human work experience – 導演、演員 – Introduction of self-service technology Eliminating routine impersonal tasks Permitting personal attention to the remaining work

– To ensure consistency of service quality Develop standards Employee train in proper procedures Customer feedback – Direct customer-employee contact Hotel industry – Difficult to have happy customers with unhappy employees – Require genuine concern for employee welfare

Nontransferrable ownership Customers do not receive ownership when purchase service – Gain access of resources for a period of time Hotel room for a night A seat on an airplane Human skill (e.g. dentist) Technology (cellular network) Physical asset (theme park)

Non-ownership Classification of Services Type of ServiceCustomer valueExamples Management Challenge Goods rentalObtain temporary right to exclusive use Vehicles, tools, furniture, equipment Site selection and maintenance Place and space rental Obtain exclusive use of portion of a larger space Hotel room, seat on airplane, storage unit Housekeeping, economies of scale Labor and expertiseHire other people to do a job Car repair, surgery, management consulting Renew Expertise, time is perishable Physical facility usage Gain access to a facility for a period of time Theme park, camp ground, physical fitness gym Queuing and crowd control Network usageGain access to participateElectric utility, cell phone, internet Availability and pricing decisions

Service Package: bundle of goods and service to deliver value 1-33

The Service Package Supporting Facility: – The physical resources that must be in place before a service can be sold. – Examples are golf course, ski lift, hospital, airplane. Facilitating Goods: – The material consumed by the buyer or items provided by the consumer. – Examples are food items, legal documents, golf clubs, medical history. 1-34

The Service Package (cont.) Information: – Operations data or information that is provided by the customer to enable efficient and customized service. – Examples are patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi. 1-35

The Service Package (cont.) Explicit Services: – Benefits readily observable by the senses. The essential or intrinsic features. – Examples are quality of meal, attitude of the waiter, on-time departure. Implicit Services: – Psychological benefits or extrinsic features which the consumer may sense only vaguely. – Examples are privacy of loan office, security of a well lighted parking lot. 1-36

The service package of a Budget Hotel – Supporting facility: – Facilitating goods: – Information: – Explicit services: – Implicit services:

The Service Process Matrix grouping service by delivery process Degree of Interaction and Customization Low High Service Factory Service Shop * Airlines * Hospitals Low * Trucking * Auto repair * Hotels * Other repair services * Resorts and recreation Mass Service Professional Service * Retailing * Doctors High * Wholesaling * Lawyers * Schools * Accountants * Retail banking * Architects 1-38 Degree of Labor Intensity

The Service Process Matrix grouping service by delivery process Degree of Interaction and Customization Low High Service Factory Service Shop * Airlines * Hospitals Low * Trucking * Auto repair * Hotels * Other repair services * Resorts and recreation Mass Service Professional Service * Retailing * Doctors High * Wholesaling * Lawyers * Schools * Accountants * Retail banking * Architects 1-39 Degree of Labor Intensity

Challenge for service management

Open Systems View of Services 1-41 Front office Back office

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