1. 1 Service, Service Systems and Services Innovation Dr. Yuhong Yan Jan, 2008

2. 2 Big Picture … SSME Science & Engineering Business Administration and Management Social Sciences Global Economy & Markets Business Innovation Technology Innovation Social-Organizational Innovation Demand Innovation SSME = Service Science, Management, and Engineering Knowledge sources driving service innovations… From IBM Almaden Service Research © Copyright IBM Corporation 2006, 2007. All rights reserved.

3. 3 Unit objectives Attain a comprehensive definition of services –Give context to the study of services –Discuss history and early definitions of services –Discuss differences between products and services Recognize modern thinking behind services dominant logic of economic exchanges Slides are modified from the IBM Almaden open course on SSME

4. 4 The Evolution of Economies Source: 2004 IBM study, based on national labor data

5. 5 Context and motivations Services becoming the new hub of most modern economies Services dominating current economic activities (U.S. Department of Commerce, 1995, p. 417)

6. 6 Percent employment in service jobs 1980198719931999 USA67.17174.380.4 Canada67.270.874.873.9 Japan54.558.159.972.4 France56.963.666.470.8 Italy48.757.760.261.1 China13.117.821.226.4 (United Nations, 1999, p. ??)

7. 7 What are some everyday services? Transportation –Trains, planes, delivery Hospitality –Hotels, restaurants Infrastructure –Communications, electricity, water Government –Police, fire, mail Financial –Banking, investments Entertainment –Television, movies, concerts Professional Services –Doctors, lawyers, skilled craftspeople, project management, education

8. 8 Service Sector Service sector is important in post-manufacturing countries –80% of economic activities in US (from National Academy of Engineering 2003) –70% of the Organization for Economic Cooperation and Development (OECD) countries

9. 9 Case Study: IBM Major Divestiture /Exit DRAM 1999 Global Network 1999 Flat Panel Displays 2001 HDD 2002 PCs 2005 5 Year Performance Trend Prior to Exit Revenue Declining Profit Impact Eroding Cash Flow Significant CapEx From Patricia Murphy, “IBM Business Prospective 2006”

10. 10 IBM’s Portfolio Action: Acquire High Value Capabilities From Patricia Murphy, “IBM Business Prospective 2006”

11. 11 IBM: From Commodity to Higher Values From Patricia Murphy, “IBM Business Prospective 2006”

12. 12 The main businesses in IBM

13. 13 The Three Main Businesses in IBM Excludes 2Q restructuring charges and PCs reclassified for 2006 segmentation changes From Patricia Murphy, “IBM Business Prospective 2006”

14. 14 Service Market Opportunity From Patricia Murphy, “IBM Business Prospective 2006”

15. 15 IBM Services Profile From Patricia Murphy, “IBM Business Prospective 2006”

16. 16 IBM Software Profile

17. 17 Services (from IBM): A service is a provider/client interaction that creates and captures value.

18. 18 Service Science, Management and Engineering Science & Engineering Business Administration and Management Social Sciences Global Economy & Markets Business Innovation Technology Innovation Social-Organizational Innovation Demand Innovation SSME = Service Sciences, Management, and Engineering Knowledge sources driving service innovations… From IBM Almaden Service Research © Copyright IBM Corporation 2006, 2007. All rights reserved.

19. 19 SSME Timeline SSME Launched 2004 Establish Awareness 2004-2006 Adoption 2006-2008 Embed 2008-2010 Graduates and practice 2010 and beyond Plan Mobilize Execute Reinforce  White papers  Initial discussions with university partners  Workshops  Press articles  Web sites  Awareness in academia, industry, gov’t  Early adopters  SSME Summit  Broadened awareness  SSME curriculum development  Cross-industry SSME focus and buy-in  Joint research projects/awards  Case studies developed  SSME tools and programs growing  Service systems as complex systems  Government and foundation funding  SSME graduates  Industry training  Industry hiring plans  Better trained workforce  +Service innovation  +Sales impact  +Client satisfaction  +Productivity  +Efficiency  +Learning speed on engagements Key Activities/Metrics Results

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21. 21 What are some everyday services? Transportation –Trains, planes, delivery Hospitality –Hotels, restaurants Infrastructure –Communications, electricity, water Government –Police, fire, mail Financial –Banking, investments Entertainment –Television, movies, concerts Professional Services –Doctors, lawyers, skilled craftspeople, project management, education

22. 22 The Definitions of Service Service is the use of human resources for the benefit of another party (Vargo, 2006). A service is a provider/client interaction that creates and captures value (IBM, 2006). A service is a change in the condition of a person or a good belonging to some economic entity, brought about as the result of the activity of some other economic entity, with the approval of the first person or economic entity (Ted Hill, 1977).

23. 23 Vargo’s Service Dominant View Three primary notions 1.Co-creation of value 2.Relationships 3.Service provisioning

24. 24 Provider-Client relationship Provider –An entity (person, business, or institution) that makes preparations to meet a need –An entity that serves Client –An entity (person, business, or institution) that engages the service of another –An entity being served Some general relationship characteristics are that the client –Participates in the service process (also known as the service engagement) –Co-produces the value –The quality of service delivered depends on customers preferences, requirements, and expectations

25. 25 Lovelock’s service Matrix Degree of labor intensity the ratio of labor cost to capital cost Degree of interaction and customization ability of the client to affect specialization (Adapted from Lovelock (1983) and Fitzsimmons & Fitzsimmons (2003))

26. 26 Recipients of the service What is the service acting upon and how is it doing it? People Processing Possessions Processing Tangible Actions Service is aimed at people’s physical body Service is aimed at material items Intangible Actions Service is aimed at people’s psyche Service is aimed at intangible asset (Adapted from The Nature of the Service Act, Lovelock, 1983, p. 15)

27. 27 Nature of services act matrix

28. 28 Client relationship matrix

29. 29 Availability of services matrix

30. 30 Service demand variation matrix

31. 31 Service delivery matrix

32. 32 Distinguishing services from goods Inseparability  Services are created and consumed at the same time  Services cannot be inventoried  Demand fluctuations cannot be solved by inventory processes  Quality control cannot be achieved before consumption Heterogeneity  From the client’s perspective, there is typically a wide variation in service offerings  Personalization of services increases their heterogeneous nature  Perceived quality-of-service varies from one client to the next

33. 33 Distinguishing services from goods Intangibility  Services are ideas and concepts that are part of a process  The client typically relies on the service providers’ reputation and the trust they have with them to help predict quality-of-service and make service choices  Regulations and governance are means to assuring some acceptable level of quality-of-service (e.g. Sarbenes-Oxley for the financial services sector) Perishability  Any service capacity that goes unused is perished  Services cannot be stored so that when not used to maximum capacity the service provider is losing opportunities  Service capability estimation and planning are key aspects for service management

34. 34 Current services thinking A service is a provider-to-client interaction that creates and captures value while sharing risks Services are value that can be rented Services are the application of specialized competences (skills and knowledge) Services are autonomous, platform independent, business functions

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36. 36 Service System Socio-technological System Any number of elements, interconnections, attributes, and stakeholders interacting to satisfy the request of a known client and create value Combination of natural and manufactured systems Interaction elements between sociological and mechanical aspects Humans, Processes, and Goods Customization activity Co-productive interaction between the provider and client Economic transaction and creation of value

37. 37 Model of Unified Services Theory (Sampson, 2004, p. 6)

38. 38 Open-Systems View of Service Operations (Fitzsimmons & Fitzsimmons, 2006, p. 30)

39. 39 Service-Profit Triangle Frontline employee Customer Firm Product and process formulation Low turnover Productivity Loyalty High-quality internal services and good internal management Revenue growth and profitability Relationship Value of service provided (Teboul, 2005, p. 33).

40. 40 How is value created? Management Gaining a Customer Keeping the Customer Pre-Production Services Good and Service Design Supplier Services Purchasing Services Contract Negotiations Financing Good and Service Guarantees Consulting Services Education/Training Services Sales/Marketing Services Production Process Create the Good or Service Process Type and Capability Good and Service Characteristics/Features Price/Cost, Quality, Time, Safety, Flexibility, Innovation and Learning, market and Financial Performance Value and Productivity Post-Production Services Servicing Loans/Financing Installation, Maintenance, and Field Repair Services Transportation Services Warranty/Claims Services Training Services Postsale Visits and Services Consulting and Technical Services Recycle and Remanufacture Warehouse/Inventory Management Synchronized Information and Feedback Loops Value Creation (Collier and Evans, 2005, p. 45)

41. 41 Productivity Labor productivity = (Output / Labor input*) *Where labor input = people or hours Multi-factor productivity = (Output / Labor input**) **Where labor input = expanded to include multiple forms Version 1.0

42. 42 Measurement of services Process Resource levels Risk Social capital Variability Waste Value Labor + Capital Cohesiveness Complexity Correction Efficiency Optimization Risk Revenue Price Flexibility Competitiveness Service outcomes Availability Quality Value Variability Accessibility Experience Prestige Satisfaction Output Input Capability Capacity Cost ~=~= = Adaptability Innovation Focus Interchangeability Productivity Employees Total Cost Version 1.0

43. 43 Summary of Services and Service Systems The nature of the services The difference of services versus goods How value is generated in a service system How to measure a service