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.

Learning Objectives Describe the fundamental characteristics of service innovation. Describe the four structural and four managerial elements of service design. Describe the components of the customer value equation. Explain and differentiate what is meant by the divergence and the complexity of a service process. Describe the sequence of states and the enablers of the new service development process. Prepare a blueprint for a service operation. Explain the difference between direct and indirect customer contact. Compare and contrast the four approaches to service system design: production-line, customer as coproducer, and information empowerment. 4-2

Innovation in Services Basic Research: Pursue a planned search for new knowledge regardless of possible application. Applied Research: Apply existing knowledge to problems in creation of new service. Development: Apply knowledge to problems to improve a current service. 4-3

Innovation 혁신 創新 创新 革新 CREATING SOMETHING NEW

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. 4-5

Levels of Service Innovation Radical Innovations Major Innovation: new service that customers did not know they needed. Start-up Business: new service for underserved market. New Services for the Market Presently Served: new services to customers of an organization. Incremental Innovations Service Line Extensions: augmentation of existing service line (e.g. new menu items). Service Improvements: changes in service delivery process (e.g. self-service boarding kiosk). Style Changes: modest visible changes in appearances. 4-6

Technology-Driven Service Innovations Source of Technology Service Example Service Industry Impact Power/energy Jet aircraft Nuclear energy International flight is feasible Less dependence on fossil fuel Facility design Hotel atrium Enclosed sports stadium Feeling of grandeur/spaciousness Year-around use Materials Photochromic glass Synthetic engine oil Energy conservation Fewer oil changes Methods Just-in-time (JIT) Six Sigma Reduce supply-chain inventories Institutionalize quality effort Information E-commerce Satellite TV Increase market to world-wide Alternative to cable TV 4-7

Service Design Elements Topics Structural Delivery system Process structure, service blueprint, strategic positioning Facility design Servicescapes, architecture, process flows, layout Location Geographic demand, site selection, location strategy Capacity planning Strategic role, queuing models, planning criteria Managerial Information Technology, scalability, use of Internet Quality Measurement, design quality, recovery, tools, six-sigma Service encounter Encounter triad, culture, supply relationships, outsourcing Managing Capacity and Demand Strategies, yield management, queue management 4-8

New Service Development Cycle Full-scale launch Post-launch review Full Launch Development Enablers Formulation of new services objective / strategy Idea generation and screening Concept development and testing Organizational Context People Service design and testing Process and system design and testing Marketing program Personnel training Service testing and pilot run Test marketing Teams Product Technology Systems Tools Analysis Design Business analysis Project authorization 4-9

Service Blueprint of Luxury Hotel 4-10

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. 4-11

Structural Alternatives for a Restaurant LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE 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 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 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 4-12

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 4-13

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 4-14

Customer Value Equation 4-15

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? 4-16

100 Yen Sushi House Prepare a service blueprint for the 100 Yen Sushi House. What features differentiate 100 Yen Sushi House and how do they create a competitive advantage? How has the 100 Yen Sushi House incorporated the just-in-time system into its operations? Suggest other services that could adopt the 100 Yen Sushi House service delivery concept. 4-17

Dishwashing Counter in Back 100 Yen Sushi House Layout Dishwashing Counter in Back CONVERSATION AREA Miso and Tea Station CONVEYOR BELT CONVERSATION AREA TAKE-OUT POSITION ENTRANCE = CHEF 4-18

Commuter Cleaning - New Venture Proposal Prepare a service blueprint for Commuter Cleaning. What generic approach to service design is illustrated by Commuter Cleaning, and what competitive advantage does this offer? Using the data in Table 4.7 calculate a break-even price per shirt if monthly demand is expected to be 20,000 shirts and the contract with a cleaning plant stipulates a charge of $0.50 per shirt. Critique the business concept, and make recommendations for improvement. 4-19

Golfsmith Prepare a service blueprint for Golfsmith. What generic approach to service design does Golfsmith illustrate and what competitive advantages does this design offer? Why is Golfsmith a good candidate for Internet sales? 4-20

INTERACTIVE CLASS EXERCISE The class breaks into small groups and prepares a service blueprint for Village Volvo. 4-21