Minder Chen, Ph.D. Associate Professor of MIS Chair of Business and Economics CSU Channel Islands

1. Service Innovation and Management Minder Chen, Ph.D. Associate Professor of MIS Chair of Business and Economics CSU Channel Islands minderchen@gmail.com

2. References (I) • James Teboul, Service Is Front Stage: Positioning Services for Value Advantage, Palgrave McMillan, 2006. • Christopher H. Lovelock and Jochen Wirtz, Services Marketing, 6/E, Prentice Hall, 2007. • James A. Fitzsimmons,Mona J. Fitzsimmons, Service Management: Operations, Strategy, and Information Technology, Irwin Professional Publication, 2008. • Leonard Berry and Kent Seltman, Management Lessons from Mayo Clinic: Inside One of the Worlds Most Admired Service Organizations, McGraw Hill, 2008. • Bill Hefley and Wendy Murphy (Editors), Service Science, Management and Engineering: Education for the 21st Century (Service Science: Research and Innovations in the Service Economy), Springer, February 1, 2008. • Michael D. Johnson and Anders Gustafsson, Competing in a Service Economy: How to Create a Competitive Advantage Through Service Development and Innovation, Jossey-Bass, May 23, 2003. • Robert F. Lusch & Stephen L. Vargo, The Service-Dominant Logic of Marketing: Dialog, Debate, And Directions, M.E. Sharpe, February 28, 2006.

3. References (II) • Putting the Service-Profit Chain to Work, Heskett, James L.; Jones, Thomas O.; Loveman, Gary W.; Sasser, Jr., W. Earl; Schlesinger, Leonard A.. Harvard Business Review, Jul-Aug 2008, Vol. 86 Issue 7/8, p118-129. • How to Sell Services MORE Profitably, Reinartz, Werner; Ulaga, Wolfgang. Harvard Business Review, May 2008, Vol. 86 Issue 5, p90-96. • The Four Things a Service Business Must Get Right, Frei, Frances X.. Harvard Business Review, April 2008, Vol. 86 Issue 4, p70-80. • BREAKING THE TRADE-OFF Between Efficiency and Service, Frei, Frances X., Harvard Business Review, Nov. 2006, Vol. 84 Issue 11, p92-101. • Vargo, Stephen L. and Lusch, Robert F. (2004a) ‘Evolving to a New Dominant Logic for Marketing’, Journal of Marketing 68(1): 1–17. • Vargo, Stephen L. and Lusch, Robert F. (2004b) ‘The Four Services Marketing Myths: Remnants from a Manufacturing Model’, Journal of Service Research 6(4): 324–35. • Succeeding through Service Innovation: A Service Perspective for Education, Research, Business and Government, by: IfM and IBM, 2008

4. Evolution of Works

5. Classification of Services • Extractive (agriculture, mining) • Transformative (construction, food, manufacturing): Second sector • Producer services (Business services and marketed services) • Personal services (domestic, hotel, repair, dry-cleaning, entertainment, etc.) • Distributive services (logistics, communication, wholesale and retail trade) • Non-marketed services (Health, welfare, government, legal serices, education services, etc.) Industry sector: Mining, Construction, & Manufacturing Source: Front Stage

6. Service classification – Proximity to final customers • Business-to-business services • Consumer services • “self-services”

7. Who or What Is the Direct Recipient of the Service? Nature of the Service Act People Possessions Tangible Actions • People processing • (services directed at people’s bodies): • Barbers • Health care • Possession processing • (services directed at physical possessions): • Refueling • Disposal/recycling Intangible Actions • Mental stimulus processing • (services directed at people’s minds): • Education • Advertising/PR • Information processing • (services directed at intangible assets): • Accounting • Banking Four Categories of Services

8. More T-shaped People to work in, study, and innovate service systems Engineering (Technology) Management (Business) Social Science (People) Slide by Jean Paul Jacob

9. Service Characteristics • A service is a deed, a performance, a process, an effort. • What is being bought is intangible. • Services are produced and consumed almost simultaneously. • Services in principle cannot be inventories. • Customers are involved in the production of the services. • Manufacturing firms also have a service component of their own. • Instant delivery and custom design are both services.

10. Service Definition • A service is a means of delivering value to customers by facilitating outcomes customers want to achieve without the ownership of specific costs and risks. • ITIL Version 3

11. Services Definition • A service is a provider/client interaction that creates and captures value. • The provider and client coordinate their work (co-production) and in the process, both create and capture value (transformation). • Services typically require assessment, during which provider and client come to understand one another's capabilities and goals. • A time-perishable, intangible experience performed for a customer acting in the role of co-producer (Fitzsimmons, 2001)

12. 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

13. 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 • Consideration: Does the ability to tailor and customize goods to the customers’ demands and preferences mean that these goods also have an inseparability characteristic? • 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 • Consideration: Can a homogeneous perception of quality due to customer preference idiosyncrasies (or due to customization) also benefit the goods manufacturer?

14. 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 • Consideration: Do most services processes involve some goods? • Perishability (No inventory) • 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 • Consideration: Do clients who participate in some service process acquire knowledge which represents part of the stored service’s value? What might the impact be? • Co-produced

15. Service Layering • Pure service: Legal service, barber shop • IT-enabled Service: Google for information search, eBay for online auction services, WebMD for online health information • IT Services: IT outsourcing service provider (IBM Global Service), on-demand data center (EDS), on-demand computing (IBM) • Service-wrapped IT products: iTune and iPod; GM OnStar (Emergency service + remote diagnosis & sensing + GPS & Navigation) • Manufacturing services: IC design houses, TSMC foundry service • Pure manufacturing: Manufacturing of commodity products Source: Minder Chen, 2007

16. Products vs. Services • Products can be seen as the physical embodiment of the service provided. • Cars provide comfortable transportation services • Televisions deliver entertainment • Cosmetics offer beatification services • Cameras provides services for wonderful memory

17. OnStar Service from GM OnStar By GM | OnStar.com, Car Safety Device and Vehicle Security System http://www.onstar.com/us_english/jsp/index.jsp Screen clipping taken: 2007/3/6, 上午07:56

18. iPod and iTune Apple - iPod + iTunes, http://www.apple.com/itunes/, Screen clipping taken: 2007/3/6, 08:02

19. November 4, 2003 - 08:35 EST   Apple today announced that its first retail store in Japan will open in Tokyo's Ginza shopping district on Sunday, November 30 at 10:00 a.m. This will be Apple's 73rd retail store, and the first outside the United States. The new store will feature five floors ….

20. Inside an Apple Store Applestore, Soho, New York, 20 Sep 2005

21. Computing Clouds: Amazon Web Services Amazon Web Services Developer Connection : AWS Solutions Catalog http://solutions.amazonwebservices.com/connect/index.jspa Screen clipping taken: 2007/3/6, 上午08:08

22. 3 New New Things （三創) • Creativity（創造力）: Individual and group creativity, creative problem solving process. • Innovation(創新): Product/service and Process innovation, culture for innovation. • Entrepreneurship(創業): Creating a business /enterprise, cost leadership, differentiation, focused market, etc.

23. Service Innovation • Innovation in services, in service products – new or improved service products (commodities or public services). Often this is contrasted with “technological innovation”, though service products can certainly have technological elements. • Innovation in service processes – new or improved ways of designing and producing services. This may include innovation in service delivery systems, though often this will be regarded instead as a service product innovation. • Innovation in service firms, organizations, and industries – organizational innovations, as well as service product and process innovations, and the management of innovation processes, within service organizations. http://en.wikipedia.org/wiki/Service_innovation

24. Dimensions of service innovation • The Service Concept: A “new value proposition”. • The Client Interface: refers to innovation in the interface between the service provider and its customers. e.g., self-service • The Service Delivery System: A "service factory" approach— is a standardized and industrialized environment for more effective service innovation. • Technological Options: Customer loyalty cards and “smart” RFID cards for transactions.

25. Service-Oriented Model & Architecture The service target may be the service client itself.

26. 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

27. Five Key Areas for Service Innovation in High Tech • The Capture, Management and Re-use of Knowledge is progressing slowly. Where are the breakthroughs? • In electronic self help? In professional services/consulting IP capture? • The Growing Complexity of the Customer’s Systems is increasing cost-to-serve and negatively effecting customer satisfaction. How can we apply innovative approaches to tracking the customer environment, the cause of problems and to facilitate cooperative service provision among different companies with common customers? • What are future approaches to Building Supportability Into Technology Products? • Predict environments conducive to problems • Sense developing problems; Take Pre-emptive actions (automated and non) • Collect information for service providers • Service organizations know more about the use of products and changing customers environments than any other part of the company. How can we Turn Mountains of Data Into Usable Management Information for services management, the sales force and product development teams? • The Services Supply Chain is becoming increasingly complex. Innovation around the “service system” business model that can help companies partner effectively will help both the quality of customer solutions and the bottom line.

28. Service innovation is inherently multidisciplinary Knowledge sources driving service innovations… Business Administration and Management Technology Innovation Business Innovation Science & Engineering Social-Organizational Innovation Demand Innovation Global Economy & Markets Social Sciences SSME = Service Sciences, Management, and Engineering

29. Manufacturing vs. Services: A matter of Degree Manufacturing Sector Service Sector

30. Three Types of Restaurants Teppanyaki-type Restaurant (i.e., Benihana) Source: Service Is Front Stage

31. Services: The front-stage experience manufacturing

32. In-N-Out Burger http://www.in-n-out.com/menu.asp

33. Important Factors to Fast-Food Users • The cleanliness of the restaurant (77 percent rated this “extremely important”), • Taste or flavor of the food (73 percent) • Order accuracy (66 percent). • Quality of ingredients also is highly important (64 percent) • Temperature of food ranks next in importance (57 percent). http://www.sandelman.com/news/pdf/2005AwardsofExcellenceRelease.pdf

34. Manchu Han Imperial Feast (Chinese cuisine 108 dishes) 懷石料理 Kaiseki or kaiseki ryōri

36. Japanese teppanyaki cooking: Hibachi-style • Moving the backstage to the frontstage • Dining + Entertaining (Showmanship) • http://www.benihana.com/about/the-benihana-story • http://www.youtube.com/watch?v=P9SUw0ARqwc&feature=related • http://www.youtube.com/watch?v=aX6gUMRqJjA&feature=related • http://www.youtube.com/watch?v=J1LGJ4rKX0g&feature=related • http://www.youtube.com/watch?v=3zATulLPfVc&feature=related • http://en.wikipedia.org/wiki/Teppanyaki

37. Food for Thought?

38. Complimentary flatbed pick-up & delivery of your vehicle. • New Express Service:  Oil change in 30 minutes. • Loaner Vehicles and complimentary car wash with every service. • Longo Lexus courtesy pickup and dropoff shuttle (within a 15-mile) • Guest Lounge with complimentary cappuccinos, coffee, tea, and pastries. • Kids Play Area with children's movies and games. • Guest Business Center provides computers, copier, fax and printer, & phone.  • Wireless internet access available throughout our facility. • Starbucks Coffee and Subway sandwich restaurant located at our facility. http://www.longolexus.com/AboutServiceAndParts

39. Empowered Customer-Focus Processes Manager as Coach Teamwork Customer-facing Process Empowered Font-line worker Values and Quality delivered to Customers timely

41. The Progression of Economic Value WELCOME TO THE EXPERIENCE ECONOMY. Pine, II, B. Joseph; Gilmore, James H.. HarvardBusinessReview, Jul/Aug98, Vol. 76 Issue 4, p97-105.

42. Build a Bear Workshop • http://www.buildabear.com/aboutus/ourcompany/process.aspx

43. Servant Leadership • Customer • Distributors/Dealers • Front-line workers • Supervisor • Managers • CIO, CFO, COO • CEO

44. Employees and Customers “You don’t get happy guests with unhappy employees.” J. W. Marriot

45. Value Chain of People Business Profitability + + + Employee Value Customer Satisfaction + + Shareholder Value +

46. Service Profit Chain

47. Lifetime Value of a Customer

48. The Service Triangle WOM: Words of Mouth

49. The Service Triangle Product and process formulation Firm High-quality internal services and Good internal management Revenue growth and profitability Frontline employee Relationship Customer Value of service provided Low turnoverProductivity Loyalty (Teboul, 2005, p. 33).

50. Customer Loyalty