Strategic Design of Service Organizations

1. Introduction Lecture 3. Service Environment

2. Service Environment • Nature and importance of services • Designing service organization • Service blue printing • Service guarantees

3. Difference between manufacture and service Manufacturing Organization Service Organization Physical, durable product Output can be inventoried Low customer contact Long response time Regional, national or international markets large facilities Capital Intensive Quality easily Measured • Intangible, perishable product • Output that cannot be inventoried • Short response time • Local markets • Small facilities • Labor intensive • Quality not easily measured

4. Nature and Importance of Service • Service creation process • Idiosyncratic: What works well in providing one kind of service may prove disastrous in another • Quality of work is not quality of service • Service package Consist of a mix of tangible and intangible attributes • High contact • Effective management of services requires an understanding of marketing and personnel • Face to face, telephone and other interactions

5. Service Strategy • Treatment of the customers by selecting the operating focus, friendliness and helpfulness • Speed and convenience of service delivery • Price of the service • Variety of services • Quality of the tangible goods that are central to or accompany the service. • Unique skills that constitute the service offerings

6. Designing Service Organizations • Designing a service organization involves four major elements 1. Identification of target market (Who is our customer?) 2. Service concept: How do we differentiate our service in the market? 3. Service strategy: What is our service package and the operating focus of our service? 4. Service delivery system: What are the actual processes, staff and facilities by which the service is created?

7. Service Process Design

8. Service Blueprinting • Service blueprint is a flowchart for service process design • Service Blueprint is a process analysis technique that focuses on the customer and the provider’s interaction with the customer. • Service blueprint distinguish between high customer contact aspects of the service and those activities that the customer does not see. This distinction is term as “ line of visibility”

9. Poka-Yokes • (Roughly translated from the Japanese as “Avoid Mistakes” • Service blueprinting describe features of the service design but doesn’t provide any direct guidelines for how to make the process confirm to that design. • Poka-Yokes blocks inevitable mistakes from becoming service defects

10. Service Blueprint for Service at Ten Minute Lube, Inc.

11. Low High Mass Service Professional Service Personal banking Commercial Banking General purpose law firms Full-service stockbroker High Low Boutiques Retailing Service Factory Service Shop Degree of Labor Intensity Law clinics Limited service stockbroker For-profit hospitals Fine dining restaurants Fast food restaurants Warehouse and catalog stores Hospitals Airlines No frills airlines Degree of Interaction and Customization Customer Interaction and Process Strategy

12. Service Process Technology • Depending on the nature and types of service to be rendered to the customer, the process technology is divided to two major types • Customer contact • Labor versus capital intensive • Customer Contact • The main feature of service is that customer’s contact is essential in two ways • Designing service or creating service or customizing service • e.g. while designing new house, customer interact closely with architect • During creating and consuming the service • e.g Hair styling • The high contact process technology is more flexible to accommodate the diverse need of customer and more customization. But the conversion process is difficult to standardized. • If the degree of contact is low, the process technology can be standardized to some extent with higher efficiency.

13. Service Process Technology Labor versus Capital Intensive • Some service organizations are labor intensive and some are capital intensive. • The service industry is classified into labor intensive organization and capital intensive organization. • In labor intensive organization, training and development of labor plays a vital role for rendering service to customer whereas technology and capital investment plays a dominant role in capital intensive organization. • On the basis of the customer’s contact and labor intensiveness, service process technology can be classified into four distinct categories as follow; • Quasi-Manufacturing process technology • b. Mass-service process technology • C, Custom shop service process technology • d. Professional service process technology

14. Low High The Service Process Matrix Capital Intensive Degree of Interaction and Customization Labour Intensive

15. Degree of customer/server contact Buffered Permeable Reactive High core (none) system (some) system (much) Low Face-to-face total customization Face-to-face loose specs Sales Opportunity Production Efficiency Face-to-face tight specs Phone Contact Internet & on-site technology Mail contact Low High Service-System Design Matrix

16. Components of Service-system design matrix • Degree of customer/server contact • It describe the contact of the customer with the service design and delivery. It is of three types • Buffered core: Very less contact with customer, or physically separated from the customer • Permeable system: It is penetrable to customer’s requirements • The reactive system: It is both penetrable and reactive to the customer’s requirements. • Logical marketing proposition • The greater the amount of contact with customer, the greater the sales opportunity. • Impact of production efficiency • The right hand side shows the impact on production efficiency as the customer exerts more influence on the operation.

17. Use of Service-system design matrix • Operational Uses • Service-system matrix helps to visualize the understanding of service Process. • It helps to visualize the service process. • Helps to understand the components of service delivery as human factor and technical components • Helps to make focus on operation and its improvements • b. Strategic Use • Enables systematic integration of operations and marketing strategy • Provides clear picture of what combination of service delivery the firm is providing • Comparison with the other firms delivery on specific services • Indicates evolutionary or life cycle changes that might be in order as the firm grows

18. Use of Service- System Design Matrix Degree of Customer/ Server Contact High Low • Operational Use B. Strategic Use • Enables systematic integration of operations and marketing strategy • Provides clear picture of what combination of service delivery the firm is providing • Comparison with the other firms delivery on specific services • Indicates evolutionary or life cycle changes that might be in order as the firm grows

19. Techniques for Improving Service Productivity Strategy Technique • Separation • Self-service • Postponement • Focus • Structure service so customers must go where service is offered • Self-service so customers examine, compare and evaluate at their own pace • Customizing at delivery • Restricting the offerings

20. Techniques for Improving Service Productivity Strategy Technique • Modules • Automation • Scheduling • Training • Modular selection of service. Modular production • Separating services that lend themselves to automation • Precise personnel scheduling • Clarifying the service options • Explaining problems • Improving employee flexibility

21. Processes at Service Organizations High • Project process • Real estate process for • For constructing facilities • for insurance company • Student’s project work • Job process • Customer service process • at financial services firm • General medical practice • Batch process • Order fulfillment process for • distributor • Placing purchase order at • Public relations agency Customization • Line process • Cafeteria line • Teller line at bank • Continuous process • Power generation plant • Providing telephone line access Low Low Volume High

22. Processes Reengineering The fundamental rethinking and radical redesign of process to improve performance dramatically – far more radical than regular process improvement. Elements of Process Reengineering Critical processes in core business Cross-functional team Strong leadership Clean-slate customer focused philosophy Information technology Thorough process analysis

23. Service Business and Internal services • Service Business (Business require interaction with the customers to produce service. E.g banks, airlines, hospitals etc • Facilities based services Customer must go to service facility • Field based services Production and consumption of service takes place in customer premise (e.g home repair)

24. Service Business and Internal services • Internal service Services required to support the activities of the larger organization • E.g. data processing, accounting, engineering etc

25. New Service development process

26. New Service development process • Development • Formulation of new services objective/strategy • Idea Generation and screening • Concept development • Analysis • Business analysis • Project authorization

27. New Service development process • Design • Service design and testing • Process and system design and testing • Marketing program design and testing • Personnel training • Service testing and pilot run • Test marketing

28. Characteristics of a Well-Designed Service System 1. Each element of the service system is consistent with the operating focus of the firm 2. It is user-friendly 3. It is robust 4. It is structured so that consistent performance by its people and systems is easily maintained 5. It provides effective links between the back office and the front office so that nothing falls between the cracks 6. It manages the evidence of service quality in such a way that customers see the value of the service provided 7. It is cost-effective

29. Service Guarantees • Service guarantee can be a marketing tool designed to provide a peace of mind for customers unsure about trying their services • A service guarantee offer has to be: • Unconditional • Meaningful to the customer • Easy to understand and communicate • Painless to exercise

30. Service Guarantees A service guarantee can be used not only as an improvement tool but also at the design stage to focus the firm’s delivery system squarely on the things it must do well to satisfy the customer. • Issues in Service Guarantees • Any guarantee is better than no guarantee. The most effective guarantees are big deals. They put the company at risk in the eyes of customer. • Involve the customer as well as employees in the design • Avoid complexity or legalistic language. • Do not quibble when a customer invokes the guarantee • Make it clear that you are happy for customers to invoke the guarantee

31. End of Lecture

32. Important Question • How do you design service? Discuss the steps of service designing process. • Describe the service design and service process technology. • Explain the techniques for improving service productivity. • Explain Service Blue Printing (5) PU 2009 BBA • Explain Service Guarantee (5) PU 2008 • “A house of quality integrates customer’s voice into the product development process.” Explain. (7) PU BBA 2004 • Differentiate between job shop, batch assembly and continuous process. (8) PU 2004 • Discuss about different types of process strategy. (7) PU 2008 • What are the types of processes? How do they differ ? Give example of each. (7) PU 2008 • How do you define services? Write down its characteristics. (7)