Service Operations The Nature of Services

1. Service OperationsThe Nature of Services MBA 570 Summer 2011

2. Unique Characteristics of Services • Intangibility: creative advertising, no patient protection, importance of reputation • Perishability: cannot inventory, opportunity loss of idle capacity, need to match supply with demand • Heterogeneity: customer participation in delivery process results in variability • Simultaneity: opportunities for personal selling, interaction creates customer perceptions of quality • Site Location: dictated by your customers • Customer Participation in the Service Process: attention to facility design but opportunities for co-production • Difficulty in measuring quality of output:

3. Interactive Model of an Economy Extractive sector Business services Customer Infrastructure services Trade services Public administration Social/personal services Manufacturing sector

4. Global Employment, % Share

5. Percent Employment in Service Jobs, by Nation, 1983-2007

6. Growth In Employment Global Private Sector Services, 1980-2007, %

7. Services as % of GDP

8. Why Services Are Important • Increased Competition • Manufacturing Support • Makes Economic Sense

9. “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.

10. Relative Importance of Service Activities Consumer Goods Merchandising Industrial Goods Merchandising All Merchandising All Manufacturing All Other Manufacturing Electronics Mfg. Chemicals & Plastics Mfg. All Industries Relative Importance of Marketing Variables Paper Mfg. Food Mfg. Product Price Service Sales Effort TOTAL 36 23 23 18 100 38 24 20 18 100 38 26 18 18 100 36 27 15 22 100 29 26 24 21 100 38 25 22 15 100 48 14 22 16 100 28 17 39 16 100 30 22 27 21 100 31 23 23 23 100 National Council of Physical Distribution Management

11. Parallel Product/Service Design Product Delivery Product Concept Product Design Service Concept Service Design Service Delivery

12. The Supply Chain Suppliers Tier 2 Suppliers Tier 1 Retailers Distributors C U S T Manufacturing O Inbound Logistics Operations Outbound Logistics M E R S Information

13. Service Industries Communications, Transportation, Utilities, Health Care, Banking, etc. R & D Commercial Services User (Self-Service) Distribution Services Wholesaling Retailing Repairing Service Intermediary Consumer (Self-Service) Product Design 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. Manufacturing Services Inside the Company--Design, Legal, Accounting Advertising, etc.

14. 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

15. Service and Profitability • Reduced operating expenses • Competitive differentiation • Increased quality • Increased efficiency • Increased responsiveness • Increased market Share • Increased customer loyalty

16. Contributors to Market Share Market Share Due to Service Activities Market Share Market Share Due to Captive Markets Market Share Due to Product Features Time

17. Proportion of Goods and Services in Purchase Bundle Goods Services 100% 75 50 25 0 25 50 75 100% Self-service gasoline……………. Personal computer…………… Office copier…………………. Fast-food restaurant………… Gourmet restaurant………… Auto repair…………………… Airline flight……………………. Haircut………………………….

18. The Service Process Matrix Degree Degree of Interaction and Customization of labor IntensityLow High Service factory: Service shop: * Airlines * Hospitals Low * Trucking * Auto repair * Hotels * Other repair services * Resorts and recreation Mass service: Professional service: * Retailing * Doctors High * Wholesaling * Lawyers * Schools * Accountants * Retail aspects of * Architects commercial banking

19. The Service Package • Supporting Facility: The physical resources that must be in place before a service can be sold. Examples are golf course, ski lift, hospital, airplane. • Facilitating Goods: The material purchased or consumed by the buyer or items provided by the consumer. Examples are food items, auto parts, legal documents, golf clubs.

20. The Service Package (cont.) • Explicit Services: Benefits readily observable by the senses. The essential or intrinsic features. Examples are quality of meal, attitude of the waiter, on-time departure. • Implicit Services: Psychological benefits or extrinsic features which the consumer may sense only vaguely. Examples are privacy of loan office, security of a well lighted parking lot.

21. The Servuction Service Model Customer A Inanimate Environment Invisible Organization And System Customer B Contact Personnel or Service Provider Invisible Visible Bundle of Service Benefits Received By Customer A

22. Moments of Truth • Each customer contact is called a moment of truth. • You have the ability to either satisfy or dissatisfy them when you contact them. • A service recovery is satisfying a previously dissatisfied customer and making them a loyal customer.

23. Cycle of Service Begin Service Encounter End Service Encounter = MOT

24. Service Process Orientation • Customer as Coproducer • Front and Back Office Perspectives • Service Profit Chain Focus on Internal and External Customers • Quality (perceptions vs expectations) • Focus on Both Efficiency and Effectiveness • Use IT as Productivity Enabler for Both Internal and External Customers

25. Customer Contact View of Services • Degree of Customer Contact Influences Potential Efficiency of Service • Separate High- and Low-Contact Operations • Consider Sales Opportunity and Production Efficiency Tradeoff

26. Servicescapes Designing Physical Surroundings to Affect Employee and Customer Behavior • Ambient Conditions: background characteristics such as noise level, music, lighting, temperature, and scent. • Spatial Layout and Functionality: reception area, circulation paths of employees and customers, and focal points. • Signs, Symbols, and Artifacts: selection, orientation, location, and size of objects.

27. Service Profit Chain • Internal quality drives employee satisfaction • Employee satisfaction drives retention and productivity • Employee retention and productivity drives service value. • Service value drives customer satisfaction. • Customer satisfaction drives customer loyalty. • Customer loyalty drives profitability and growth.

28. The Links in the Service-Profit Chain Operating Strategy and Service Delivery System Employee Retention Revenue Growth Internal Service Quality External Service Value Customer Satisfaction Employee Satisfaction Customer Loyalty Employee Productivity Profitability • workplace design • job design • employee selection • and development • employee rewards • and recognition • tools for serving • customers • retention • repeat business • referral • Service concept: • results for customers • service designed • and delivered to • meet targeted • customers' needs

29. The Cycle of Capability • Careful employee and customer selection • High-quality training • Well-designed support systems • Greater latitude to meet customer’s needs • Clear limits on expectations of employees • Appropriate rewards and recognition • Satisfied employees • Employee referrals of job candidates