Welcome to Service Management The Role of Services in an Economy James Fitzsimmons Seay Professor of Business Emeritus University of Texas at Austin McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives Identify traits that all services have in common. Discuss the central role of services in an economy. Identify and differentiate the five stages of economic activity. Describe the features of preindustrial, industrial, and postindustrial societies. Describe the features of the new service economy. Contrast the push vs. pull theories of innovation. Identify the sources of service sector growth. 1-2

Service Definitions Services are deeds, processes, and performances. Valarie Zeithaml & Mary Jo Bitner A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer. James Fitzsimmons 1-3

Definition of Service Firms Service enterprises are organizations that facilitate the production and distribution of goods, support other firms in meeting their goals, and add value to our personal lives. James Fitzsimmons 1-4

Percent Employment in Services Top Ten Postindustrial Nations Country United States United Kingdom The Netherlands Sweden Canada Australia France Japan Germany41.8n/a Italy

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 1-6

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 1-7

Trends in U.S. Employment by Sector 1-8

Stages of Economic Development 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 1-9

Percent Distribution of U.S. Employment by Industry 1-10

Projected Percent Change in U.S. Employment by Industry -20%-10%0%10%20%30% Health care and social assistance Professional and business services Educational services Financial services Leisure and hospitality Other services Construction Transportation and utilities Information State and local government Retail and wholesale trade Federal government Agriculture and mining Manufacturing All Industry Average 1-11

Economic Evolution 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 1-12

The Four Realms of an Experience 1-13

Experience Design Principles Theme the Experience (Forum shops) 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

Typology of Services in the 21 st Century 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 1-15

Source of Service Sector Growth Information Technology (e.g. Internet) Innovation Push theory (e.g. Post-it) Pull theory (e.g. Cash Management) Services derived from products (e.g. Netflix) Exploiting information (e.g. Auto part sales) Difficulty of testing service prototypes Changing Demographics Aging of the population Two-income families Growth in number of single people Home as sanctuary 1-16

Distribution of GDP in the US Economy ProductServices Physical Information 6% 10% 31% 53% 37% 63% 84% 16% D BA C 1-17