1. Chapter 04 New Service Development McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

2. Learning Objectives Describe the challenges of service innovation. Describe the new service development process/cycle. Describe the components of the customer value equation. Explain and differentiate what is meant by the divergence and the complexity of a service process. Compare and contrast the four approaches to service system design: production-line, customer as coproducer, and information empowerment. Describe the generic techniques to service design Service blueprint example. Prepare a blueprint for a service operation. Explain the difference between direct and indirect customer contact. 4-2

3. Challenges for Service Innovation Ability to protect intellectual and property technologies. Incremental nature of innovation. Degree of integration required. Ability to build prototypes or conduct tests in a controlled environment. 4-3

4. New Service Development Process Pilot run and final tests New product or service launch Final design & process plans Idea generation Feasibility study Product or service concept Performance specifications Functional design Form design Production design Revising and testing prototypes Design specifications Manufacturing or delivery specifications Suppliers R&D Customers MarketingCompetitors

5. New Service Development Cycle People Technology Systems Product Full Launch Development Design Analysis Organizational Context Teams Tools Enablers Formulation of new services objective / strategy Idea generation and screening Concept development and testing Business analysis Project authorization Full-scale launch Post-launch review Service design and testing Process and system design and testing Marketing program design and testing Personnel training Service testing and pilot run Test marketing 4-5

6. Strategic Positioning Through Process Structure Degree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital. Degree of Divergence: Amount of discretion permitted the server to customize the service. For example the activities of an attorney contrasted with those of a paralegal. 4-6

7. Structural Alternatives for a Restaurant No Reservations Self-seating. Menu on Blackboard Eliminate Customer Fills Out Form Pre-prepared: No Choice Limit to Four Choices Sundae Bar: Self-service Coffee, Tea, Milk only Serve Salad & Entree Together: Bill and Beverage Together Cash only: Pay when Leaving TAKE RESERVATION SEAT GUESTS, GIVE MENUS SERVE WATER AND BREAD TAKE ORDERS Salad Bar Entree (6 choices) Dessert (6 choices) Beverage (6 choices) SERVE ORDERS CASH OR CREDIT CARD Specific Table Selection Recite Menu: Describe Entrees & Specials Assortment of Hot Breads and Hors D’oeuvres At table. Taken Personally by Maltre d’ Salad (4 choices) Expand to 10 Choices: Add Flaming Dishes; Bone Fish at Table Expand to 12 Choices Add Exotic Coffees; Wine list, Liqueurs Separate-courses; Hand Grind Pepper Choice of Payment. Including House Accounts: Serve Mints LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE 4-7

8. Taxonomy of Service Processes Low divergence High divergence (standardized service) (customized service) Processing Processing Processing Processing Processing Processing of goods Information of people of goods Information of people Dry Check Auto repair Computer No Cleaning processing Tailoring a programming Customer Restocking Billing for a suit Designing a Contact a vending credit card building machine Ordering Supervision Indirect groceries of a landing customer from a home by an air contact computer controller No Operating Withdrawing Operating Sampling Documenting Driving a customer- a vending cash from an elevator food at a medical rental car service machine an ATM Riding an buffet dinner history Using a worker Assembling escalator Bagging of health club interaction premade groceries Searching for facility (self- furniture information Direct service) in a library Customer Customer Food Giving a Providing Home Portrait Haircutting Contact service service in a lecture public carpet painting Performing worker restaurant Handling transit cleaning Counseling a surgical interaction Hand car routine bank Mass Landscaping operation washing transactions vaccination service 4-8

9. Generic Approaches to Service Design Production-line Limit Discretion of Personnel Division of Labor Substitute Technology for People Standardize the Service Customer as Coproducer Self Service Smoothing Service Demand Customer-Generated Content Customer Contact Degree of Customer Contact Separation of High and Low Contact Operations Sales Opportunity and Service Delivery Options Information Empowerment Employee Customer 4-9

10. Discussion Questions What are the limits in the production-line approach to service? Give an example of a service in which isolation of the technical core would be inappropriate. What are some drawbacks of customer participation in the service delivery process? What ethical issues are raised in the promotion of sales during a service transaction? Go to http://www.oecd.org/home and find the current non-manufacturing share of total business R&D for the countries listed in Table 1.1. Are there any surprises?http://www.oecd.org/home 4-10

11. Generic Service Design Techniques Simplification Standardization Modularity

12. Customer Value Equation 4-12

13. Service Blueprint A type of process flowchart that emphasizes customer interaction and service related items such as failure points and lines of visiblity. Why?

14. Service Blueprint of Luxury Hotel 4-14

15. Service Blueprint for an Installment Lending Operation Source: Lynn Shostack, “Service Positioning through Structural Change,” Journal of Marketing 51 (January 1987), p. 36. Reprinted with permission by the American Marketing Association

16. 100 Yen Sushi House 1. Prepare a service blueprint for the 100 Yen Sushi House. 2. What features differentiate 100 Yen Sushi House and how do they create a competitive advantage? 3. How has the 100 Yen Sushi House incorporated the just-in-time system into its operations? 4. Suggest other services that could adopt the 100 Yen Sushi House service delivery concept. 4-16

17. 100 Yen Sushi House Layout Miso and Tea Station CONVERSATION AREA Dishwashing Counter in Back ENTRANCE CONVEYOR BELT TAKE-OUT POSITION = CHEF 4-17