Presentation on theme: "Service Engineering and Management Lecture 2"— Presentation transcript:
1 Service Engineering and Management Lecture 2 ISM 270Service Engineering and ManagementLecture 2
2 Notes Video of class available from website Homework 1 due next week Username:Password:Homework 1 due next weekHomework 2 due 2 weeksOffice hours 5pm room 2085Computer access to SOE account availableLibrary challenges
4 Data Envelopment Analysis (DEA) Method for evaluating efficiency of similar venues/productsIncorporates inputs and outputs – not just one dimensionalUses LINEAR PROGRAMMING (LP)KEY IDEA:Weight the inputs and outputs to make one unit as efficient as possible, relative to all othersIf this is 100% efficient, then the unit is on the frontier of efficiency;If less than 100%, there are other units that could utilize the SAME inputs for MORE outputs
5 DEA summary of terms Define variables Note: E_k = efficiency of unit k u_j= coefficient for output j (relative decrease in efficiency per unit reduction of output value)v_i = coefficient for input i (relative increase in efficiency per unit decrease of input value)O_jk = observed ouput j units generated by service unit k during one time periodI_ik = no. units input used by service unit k during one periodNote:k=1..K = service unit counterj=1..M = output counteri=1..N = input counter
6 DEA Objective and constraints Evaluating unit eTrick = Rescaling to get linear equations
7 Example from Text: Burger Palace Small, artificial example for illustration!Page 68Excel formulation
9 Learning ObjectivesClassify a service into one of four categories using the service process matrix.Describe a service using the four dimensions of the service package.Discuss the managerial implications of the distinctive characteristics of a service operation.Discuss the insights obtained from a strategic classification of services.Discuss the role of a service manager from an open-systems view of service.
10 An Integrated Approach to Service Management The Eight Components • Product Elements • Place, Cyberspace, and Time • Promotion and Education • Price and Other User Outlays + Process + Productivity and Quality + People + Physical EvidenceRequire the Integration of Marketing, Operations, and Human Resources
11 Service/Product Bundle ElementCore GoodsExampleCore ServiceBusinessCustom clothierBusiness hotelCoreBusiness suitsRoom for the nightPeripheralGoodsGarment bagBath robeServiceDeferred payment plansIn house restaurantVariantCoffee loungeAirport shuttle
12 The Service Process Matrix Degree Degree of Interaction and Customizationof labor Intensity Low HighService factory: Service shop:* Airlines * HospitalsLow * Trucking * Auto repair* Hotels * Other repair services* Resorts and recreationMass service: Professional service:* Retailing * DoctorsHigh * Wholesaling * Lawyers* Schools * Accountants* Retail aspects of * Architectscommercial banking
13 The Service PackageSupporting 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 consumed by the buyer or items provided by the consumer. Examples are food items, legal documents, golf clubs, medical history.Information: Operations data or information that is provided by the customer to enable efficient and customized service. Examples are patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi.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.
14 Distinctive Characteristics of Services Customer Participation in the Service Process: attention to facility design but opportunities for co-productionSimultaneity: opportunities for personal selling, interaction creates customer perceptions of qualityPerishability: cannot inventory, opportunity loss of idle capacity, need to match supply with demandIntangibility: creative advertising, no patent protection, importance of reputationHeterogeneity: customer participation in delivery process results in variability
15 Strategic Service Classification (Nature of the Service Act) Direct Recipient of the ServiceNature ofthe Service Act People ThingsPeople’s bodies: Physical possessions:Health care Freight transportationPassenger transportation Repair and maintenanceTangible actions Beauty salons Veterinary careExercise clinics Janitorial servicesRestaurants Laundry and dry cleaningPeople’s minds: Intangible assets:Education BankingIntangible actions Broadcasting Legal servicesInformation services AccountingTheaters SecuritiesMuseums Insurance
16 Strategic Service Classification (Relationship with Customers) Type of Relationship between Service Organization and Its CustomersNature ofService Delivery “Membership” relationship No formal relationshipInsurance Radio stationTelephone subscription Police protectionContinuous delivery Electric Utility Lighthouseof service Banking Public HighwayLong-distance phone calls RestaurantTheater series tickets Pay phoneDiscrete Transit pass Toll highwaytransactions Sam’s Wholesale Club Movie theaterAirline frequent flyer Public transportation
17 Strategic Service Classification (Customization and Judgment) Extent to Which Service Characteristics Are CustomizedExtent to Which PersonnelExercise Judgment in MeetingCustomer Needs High LowSurgery Preventive health programsHigh Taxi services Education (large classes) Gourmet restaurant Family restaurantTelephone service Public transportationHotel services Spectator sportsLow Retail banking Movie theaterCafeteria Institutional food service
18 Strategic Service Classification (Nature of Demand and Supply) Extent of Demand Fluctuation over TimeExtent to which SupplyIs Constrained Wide NarrowElectricity InsurancePeak demand can Telephone Legal servicesusually be met Police emergency Bankingwithout a major delay Hospital maternity unit Laundry and dry cleaningTax preparation Fast food restaurantPeak demand regularly Passenger transportation Movie theaterexceeds capacity Hotels and motels Gas station
19 Strategic Service Classification (Method of Service Delivery) Availability of Service OutletsNature of Interactionbetween Customer andService Organization Single site Multiple siteCustomer travels toTheater Bus serviceservice organization Barbershop Fast-food chainService provider Taxi Mail deliverytravels to customer Pest control service AAA emergency repairsTransaction is at Credit card company Broadcast networkarm’s length Local TV station Telephone company
20 Open Systems View of Services Service Process Consumer EvaluationConsumer arrivals Consumer participant departures Criteria(input) Consumer-Provider ( output) MeasurementinterfaceControl MonitorCustomer demand Service operations manager Service personnelProduction function:Perceived needs Alter Monitor and control process Schedule EmpowermentLocation demand Marketing function: supply TrainingInteract with consumers AttitudesControl demandModify as necessaryDefine standardService packageSupporting facilityCommunicate Facilitating goods Basis ofby advertising Explicit services selectionImplicit services
21 Topics for DiscussionWhen does collecting information through service membership become an invasion of privacy?What are some management problems associated with allowing service employees to exercise judgement in meeting customer needs?What factors are important for a manager to consider when attempting to enhance a service firm’s image?
24 Learning Objectives Formulate a strategic service vision. Discuss the competitive environment of services.Describe how a service competes using the three generic service strategies.Discuss the service purchase decision.Discuss the competitive role of information in services.Explain the role of the virtual value chain in service innovation.Discuss the limits in the use of information.Categorize a service firm according to its stage of competitiveness.Conduct a data envelopment analysis (DEA).
25 Strategic Service Vision Target Market Segments What are common characteristics of important market segments?What dimensions can be used to segment the market, demographic, psychographic?How important are various segments?What needs does each have?How well are these needs being served, in what manner, by whom?
26 Strategic Service Vision Service Concept What are important elements of the service to be provided, stated in terms of results produced for customers?How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others?How do customers perceive the service concept?What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed?
27 Strategic Service Vision Operating Strategy What are important elements of the strategy: operations, financing, marketing, organization, human resources, control?On which will the most effort be concentrated?Where will investments be made?How will quality and cost be controlled: measures, incentives, rewards?What results will be expected versus competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers?
28 Strategic Service Vision Service Delivery System What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures?What capacity does it provide, normally, at peak levels?To what extent does it, help insure quality standards, differentiate the service from competition, provide barriers to entry by competitors?
29 Competitive Environment of Services Relatively Low Overall Entry BarriersEconomies of Scale LimitedHigh Transportation CostsErratic Sales FluctuationsNo Power Dealing with Buyers or SuppliersProduct Substitutions for ServiceHigh Customer LoyaltyExit Barriers
30 Competitive Service Strategies (Overall Cost Leadership) Seeking Out Low-cost CustomersStandardizing a Custom ServiceReducing the Personal Element in Service Delivery (promote self-service)Reducing Network Costs (hub and spoke)Taking Service Operations Off-line
31 Competitive Service Strategies (Differentiation) Making the Intangible Tangible (memorable)Customizing the Standard ProductReducing Perceived RiskGiving Attention to Personnel TrainingControlling Quality Note: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service.
32 Competitive Service Strategies (Focus) Buyer Group: (e.g. USAA insurance and military officers)Service Offered: (e.g. Shouldice Hospital and hernia patients)Geographic Region: (e.g. Austin Cable Vision and TV watchers)
33 Customer Criteria for Selecting a Service Provider Availability (24 hour ATM)Convenience (Site location)Dependability (On-time performance)Personalization (Know customer’s name)Price (Quality surrogate)Quality (Perceptions important)Reputation (Word-of-mouth)Safety (Customer well-being)Speed (Avoid excessive waiting)
34 Service Purchase Decision Service Qualifier: To be taken seriously a certain level must be attained on the competitive dimension, as defined by other market players. Examples are cleanliness for a fast food restaurant or safe aircraft for an airline.Service Winner: The competitive dimension used to make the final choice among competitors. Example is price.Service Loser: Failure to deliver at or above the expected level for a competitive dimension. Examples are failure to repair auto (dependability), rude treatment (personalization) or late delivery of package (speed).
35 Competitive Role of Information in Services Strategic Focus Competitive Use of InformationOn-line(Real time)Off-line(Analysis)External(Customer)Creation of barriers to entry:Reservation systemFrequent user clubSwitching costsData base asset:Selling informationDevelopment of servicesMicro-marketingInternal(Operations)Revenue generation:Yield managementPoint of sale Expert systemsProductivity enhancementInventory statusData envelopmentanalysis (DEA)
36 The Virtual Value Chain Marketplace vs MarketspaceCreating New Markets Using Information (Gather, Organize, Select, Synthesize, and Distribute)Three Stage Evolution • 1st Stage (Visibility): See physical operations more effectively with information – Ex. USAA “paperless operation” • 2nd Stage (Mirroring Capability): Substitute virtual activities for physical – Ex. USAA “automate underwriting” • 3rd Stage (New Customer Relationships): Draw on information to deliver value to customer in new ways – Ex. USAA “event oriented service”
37 Limits in the Use of Information Anti-competitive (Barrier to entry)Fairness (Yield management)Invasion of Privacy (Micro-marketing)Data Security (Medical records)Reliability (Credit report)
38 Using Information to Categorize Customers Coding grades customers on how profitable their business is.Routing is used by call centers to place customers in different queues based on customer code.Targeting allows choice customers to have fees waived and get other hidden discounts.Sharing data about your transaction history with other firms is a source of revenue.
39 Stages in Service Firm Competitiveness 1. Available for service Journeyman Distinctive competence World-class service deliveryCustomers patronize service Customers neither seek Customers seek out the firm The company’s name is synonymousfirm for reasons other than out nor avoid the firm on the basis of its sustained with service excellence. Its serviceperformance reputation for meeting doesn’t just satisfy customers; itcustomer expectations delights them and thereby expandscustomer expectations to levels itscompetitors are unable to fulfill.Operations is reactive, Operations functions in a Operations continually excels, Operations is a quick learner and fastat best mediocre, uninspired reinforced by personnel innovator; it masters every step of thefashion management and systems service delivery process and providesthat support an intense capabilities that are superior tocustomer focus competitors.SERVICE QUALITYIs subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations andhighly variable expectations; consistent expectations; consistent seeks challenge; improveson one or two key on multiple dimensions continuously.dimensions.
40 Stages in Service Firm Competitiveness 1. Available for service Journeyman Distinctive competence World-class service deliveryBACK OFFICECounting room Contributes to service, plays Is equally valued with front Is proactive, develops its ownan important role in the total office; plays integral role capabilities, and generatesservice, is given attention, opportunities.but is still a separate role.CUSTOMERUnspecified, to be A market segment whose A collection of individuals A source of stimulation, ideas,satisfied at minimum cost. basic needs are understood whose variation in needs is and opportunity.understood.INTRODUCTION OF NEW TECHNOLOGYWhen necessary for When justified by cost When promises to enhance Source of first-mover advantages,survival, under duress savings service creating ability to do things yourcompetitors can’t do.WORKFORCENegative constraint Efficient resource; disciplined; Permitted to select among Innovative; creates procedures.follows procedures alternative procedures.FRONT-LINE MANAGEMENTControls workers Controls the process Listens to customers; coaches Is listened to by top managementand facilitates workers as a source of new ideas. Mentors works to enhance their career.