1. Service: The New Frontier
Welcome to
Service Management
Professor Drew Rosen

2. Learning Objectives
Describe the central role of services in an economy.
To explore the differences between manufacturing and services.
Explore the role of services within manufacturing and manufacturing’s reliance on services.
Understanding service management/service operations
Describe and contrast the features of the new experience economy with that of previous economies.

3. Interactive Role of Services

4. Service Definitions
A Service is a Time-perishable, Intangible Experience Performed for a Customer Acting in the Role of a Coproducer.
James Fitzsimmons
Services are deeds, processes, and performances.
Valarie Zeithaml & Mary Jo Bitner

5. 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

6. Stages of Economic Development
Features
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 of health, Global
education,
recreation

7. The Service Revolution
“There are no such things as service
industries. There are only industries whose service components are greater or less then those of other industries. Everybody is in service”!
Theodore Levitt
The Question to ask yourselves IS
How much of a service company are you???
You/You/YOU/YOu/YOU/YOU/YOU/
We all are involved in the service sector No one is immune from it’s effects
AND shouldn't be (thats why you are here)
As manufacturing becomes
more automated
streamlining operations
outsourcing more functions----service is growing
Recent studies show that ;
**The service component of a typical manufacturer is growing rapidly
30-70% of value Added
are attributable to service functions
70% of total costs---- WHY do we still push for shop floor improvements
as world economies/businesses evolves
preindustrial
industrial
post industrial
a new combination of labor/capital/organization is taking place
fewer employees etc..
A few stats

8. Global Employment, % Share
1st glance data may be disturbing
/BUT manufacturing Peeked ~~1950
and has been declining ever since
WHY/
we are being more productive and efficient
a different mix,
BUT with this new mix there is an INCREASE reliance on
Services
as the #;s show!!!
Acct/Finance/transportation/healthcare/P.M. etc ( all of these activities that we do not concentrate on)
AS well as pure services

9. Percent Employment in Service
Jobs, by Nation,
No country is immune from the growth in the service sector
Some more then others
Whats causing this
Italy/Japan are flat
UK way up

10. Global Private Sector Services, 1980-2015, %
Growth In Employment
Global Private Sector Services, , %
All services have shown dramatic increases
especially legal and business!!!!
Business services=
What services does your firm outsource!!!!
Sears has Integrated backward and forward into insurance and finance---
Service Master (1.4 billion in revenues) 3.5 billion Guilders---
By lowering Manufacturing costs
by managing complete equipment and plant maintenance,
It will also design—layout, operate your facility (while sharing in the revenues!!!)
Johnson Controls---Engineering/Plant design/operations ----

11. Services as % of GDP
The US is not alone in our increasing reliance and
importance of services
WE do lead the charge
But we lead most other stats as well
US =72% Germany 57%
while
MFG GDP is falling
US = 23% >20% Britain and Canada
This change is not only Domestic BUT ________>
GDP—Gross Domestic product
The value of all production within a country
A SINGLE CATEGORY FINANCE IS ALMOST AS LARGE AS ALL MANUFCTURING

12. Services Defined Service Industry Customer Service Field Service
Definition is Ambiguous at best
APICS E&R Newsletter June 1996/Vol 2/Jim Pope
not in APICS dictionary
3 uses:
1. One where no final goods inventory exists
(maybe raw/wip) but no finished goods inv.
PRODUCED AND CONSUMED AT THE SAME TIME
2. Cust. Service--relationship during delivery
time/price/quality
3. Field--relationship after delivery
warranty service/parts avail/follow-up
**any function that does not directly contribute to the production of the product.
Defined as what it’s not US Gov’t defines it as a residual
non-farming, non-manufacturing employment
so whats IBM what about General Motors
In: BCBS out: Financial(gmac) must begin to think as ourselves as not just a manufacturer but a SERVICE ORG. and accept there new VIEW
Massive Hidden Service sector
Pre & Post services--- Acct/legal/utilities/health care/waste disposal/maintenance
PROBLEM AREA
How measured:
--product/process design
--R&D
--Mkt. Research
--Acct/Data Analysis
*** captured as Mfg. Costs if preformed WITHIN mfg. Concerns
*** Captured as services if preformed EXTERNLY

13. Why Services Are Important
Increased Competition
Manufacturing Support
Makes Economic Sense
The ability to differenate an undifferanted product/commodity etc.
Mfg. Cannot exist without the functions services provide
3. Customers want to be treated well and do repeat business with the firms that emphasize quality
4. The life blood of any company is repeat business
Service recovery etc.
customer loyalty
create apostles for your firm
Increased relationships between Mfg. And service functions
5. President of Hienkien has been quoted as saying: “we are just a Marketing company with a production facility as a service”
richard Wagnor President of GM--- we just manufacture vechiles so we can finance them

14. “When the quality and price of competing
products are similar or nearly identical,
service activities can ‘differentiate’
undifferentiated products in the mind of
the customer”
Glaskowsky et al.
Your ability to SERVICE your customers will be the key between
Success and Failure
Whats counts most is the SERVICE built into the product
way it is designed/delivered
billed/bundled
explained and installed
repaired/renewed
SERVICE is not A competitive edge it is THE competitive edge

15. Relative Importance of Service Activities
Consumer Goods
Merchandising
All Manufacturing
All Merchandising
Industrial Goods
Merchandising
Manufacturing
All Other
Chemicals &
Plastics Mfg.
Electronics Mfg.
All Industries
Relative Importance
of Marketing Variables
Food Mfg.
Paper Mfg.
Product
Price
Service
Sales Effort
TOTAL 36 23 18
100 38 24 20 18
100 38 26 18
100 36 27 15 22
100 48 14 22 16
100 29 26 24 21
100 38 25 22 15
100 30 22 27 21
100 31 23
100 28 17 39 16
100
SERVICE ranks right alongside
price in perceived importance by
industrial customers
Profitability & Market share
National Council of Physical
Distribution Management

16. Parallel Product/Service Design
Delivery
Product
Concept
Product
Design
If Services have this much input
Design In service systems from the beginning
Only when we begin to put service on the same level as Mfg will we begin to see the gains in productivity that have long alluded us!!
Service
Concept
Service
Design
Service
Delivery

17. The Supply Chain Information C U S T Manufacturing O M E R S
Suppliers
Tier 2
Suppliers
Tier 1
Retailers
Distributors C U S T
Manufacturing O
Inbound Logistics
Operations
Outbound Logistics M E
---Managing the numerous service functions within the supply chain
---At every stage
----At every level
Especially Information
Service IS a major Organizational function along the supply chain----^^ R S
Information

18. Manufacturing Distribution Service Intermediary Product Design
Service Industries
Communications, Transportation,
Utilities, Health Care, Banking, etc.
R & D
Manufacturing
Commercial
Services User
(Self-Service)
Distribution
Services
Wholesaling
Retailing
Repairing
Services Inside the
Company--Design,
Legal, Accounting
Advertising, etc.
Service
Intermediary
Consumer
(Self-Service)
Product
Design
Components of SERVICE
Interactions Among Manufacturing and Service Activities
Purchaser of automated equipment requires more then delivery
-installation services
-application aids
-parts/ post purchase repair maintaence etc.
WITH this increasing interdependencies it is now time to give the level of attention to SERVICE functions that has always been reserved formanufacturing
Sectors of economy’s are becoming increasingly interdependent
Private Business Services
Supporting Manufacturing,
Accounting, Legal, Consulting,
Software, Maintenance
Government Support Services
Waste Disposal Services, Road Maintenance,
Education, Health Support, Standards,
Police and Fire Protection, etc.

19. The Service Revolution
“There are no such things as service
industries. There are only industries whose service components are greater or less then those of other industries. Everybody is in service”
Theodore Levitt
The Question to ask yourselves IS
How much of a service company are you???
You/You/YOU/YOu/YOU/YOU/YOU/
We all are involved in the service sector No one is immune from it’s effects
AND shouldn't be (thats why you are here)
As manufacturing becomes
more automated
streamlining operations
outsourcing more functions----service is growing
Recent studies show that ;
**The service component of a typical manufacturer is growing rapidly
30-70% of value Added
are attributable to service functions
70% of total costs---- WHY do we still push for shop floor improvements
as world economies/businesses evolves
preindustrial
industrial
post industrial
a new combination of labor/capital/organization is taking place
fewer employees etc..
A few stats

20. Service and Profitability
Reduced operating expenses
Competitive differentiation
Increased quality
Increased efficiency
Increased responsiveness
Increased market Share
Increased customer loyalty
A service focus will lead to pro=actively managing the service function as a profit center because it will generate future revenues as the product becomes a commodity.
Differentiation and Lower costs
Improved transportation /Materials handling
CAN/WILL cut costs as effectively as cutting
direct labor or material inputs
CAD and MFG software can increase quality and Reduce costs as easily
as can new equipment
Product Quality once the compeitive Advantage is now just the Ante’
Service is not A competitive edge
IT IS THE Competitive edge
Improved transportation ands materials handling can cut costs as effectively as cutting direct labor or materials.
In most mfg. industries service costs out way direct labor costs by a factor of 3-10 to 1,
YET we only look at labor and cautiously look at service functions
planning/ Q.C./ Distribution
accounting /Transportation/ Advertising
inventory/ Design

21. WHy become service driven!!!
Contributors to Market Share
Market Share
Due to
Service Activities
Market
Share
Market Share
Due to
Captive Markets
A Service focus will not only reduce current operating expenses and thereby exert considerable leverage on profits, IT will increase customer satisfaction which will increase long-term profitability
---drives customer loyality
WHy become service driven!!!
1. To differentiate your company from it’s competitors
2. To build Market Share & customer loyality
Over the long-run you can’t maintain market share with unique features alone----your competitors will catch you!!!
Only through service and loyal customers will you increase market share.
Also: you can’t build market share by cutting price
or cutting quality, studies show that in the long run that approach is doomed for failure
Service profit chain-----^^^
It is now obvious that a service focus will not only reduce current operating expenses & thereby exert a considerable amount of leverage on profits, but will increase customer satisfaction which will increase market share----which will in turn Increase long-term profitability
Lost market share mauy be regained through service---
Market Share
Due to
Product Features
Time

22. Satisfaction and Loyalty
apostle
zone of affection
100%
80%
zone of indifference
60%
Loyalty (Retention)
40%
zone of defection
Profit growth is stimulated by loyalty
A score of 5 is 6X more likly
Loyalty is a direct result of satisfaction to repurchase then a score of 4
Satisfaction is driven by value need to create Apostles!!!
To max Profits we need to go beyond being #1 or #2 in our Industry
which has been the holy grail for nearly 2 decades
* New measures show that Customer Loyality may be a more important determinat of profit
Studies show that a 5% increase in loyality can produce Profit increases fron 25 to 85%
Quality of Market (measures in terms of customer loyalty)
deserves as much attention as Quantity of share Depth of relationship
So what drives loyality???
Service and customer service = satisfaction
20%
terrorist 1 2 3 4 5
Dissatisfied
Neutral
Satisfied
Very
satisfied
Very
dissatisfied
Satisfaction

23. The New Experience Economy

24. The Four Realms of an Experience

25. Experience Design Principles
Theme the Experience (Forum shops)
Harmonize Impressions with Positive Cues (Fort Lauderdale airport parking garage)
Eliminate Negative Cues (Cinemark talking trash containers)
Mix in Memorabilia (Hard Rock T-shirts)
Engage all Five Senses (Mist in Rainforest)

26. Role of the Service Manager
Entrepreneurial Innovation
Capitalizing on Social Trends
Management Challenges Economies of Scale (MRI scanner) Economies of Scope(Convenience store) Complexity (Yield Management) Boundary Crossing (Bank vs Brokerage) International Competitiveness(Diversity)

27. Profits are the result of attention to quality and customer satisfaction, while the reverse is rarely true.
Edwards Deming

28. Discussion Topics
Is it possible for an economy to be based entirely on services?
Speculate on the effect that the Internet will have on the delivery of services.
What is the value of self-service in an economy? What are the implications?
Comment on the role that marketing plays in the service innovation process.
Illustrate how the type of work he or she does influences a persons lifestyle.