New Service Development McGraw-Hill/Irwin Copyright © 2011 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 CREATING SOMETHING NEW 혁신 創新 创新 革新

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. 4-4

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 ExampleService Industry Impact Power/energyJet aircraft Nuclear energy International flight is feasible Less dependence on fossil fuel Facility designHotel atrium Enclosed sports stadium Feeling of grandeur/spaciousness Year-around use MaterialsPhotochromic glass Synthetic engine oil Energy conservation Fewer oil changes MethodsJust-in-time (JIT) Six Sigma Reduce supply-chain inventories Institutionalize quality effort InformationE-commerce Satellite TV Increase market to world-wide Alternative to cable TV 4-7

Service Design Elements Design ElementsTopics Structural Delivery systemProcess structure, service blueprint, strategic positioning Facility designServicescapes, architecture, process flows, layout LocationGeographic demand, site selection, location strategy Capacity planningStrategic role, queuing models, planning criteria Managerial InformationTechnology, scalability, use of Internet QualityMeasurement, design quality, recovery, tools, six-sigma Service encounterEncounter triad, culture, supply relationships, outsourcing Managing Capacity and Demand Strategies, yield management, queue management 4-8

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 4-9

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 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 4-12

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

100 Yen Sushi House Layout Miso and Tea Station CONVERSATION AREA Dishwashing Counter in Back ENTRANCE CONVEYOR BELT TAKE-OUT POSITION = CHEF 4-16

100 Yen Sushi House Questions 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. 4-17

COMMUTER CLEANING A New Venture Proposal 4-18

Commuter Cleaning: New Venture Proposal 1. Prepare a service blueprint for Commuter Cleaning. 2. What generic approach to service design is illustrated by Commuter Cleaning, and what competitive advantage does this offer? 3. 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. 4. Critique the business concept, and make recommendations for improvement. 4-19

Service Blueprint 4-20

Breakeven Analysis Fixed Expenses= (Demand)(Price-Charge) $13,404= 20,000 (Price ) Price= (13, ,000)/20,000 = $

Golfsmith 1. Prepare a service blueprint for Golfsmith. 2. What generic approach to service design does Golfsmith illustrate and what competitive advantages does this design offer? 3. Why is Golfsmith a good candidate for Internet sales? 4-22

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 and find the current non-manufacturing share of total business R&D for the countries listed in Table 1.1. Are there any surprises? 4-23

INTERACTIVE CLASS EXERCISE The class breaks into small groups and prepares a service blueprint for Village Volvo. 4-24