ISM 270 Service Engineering and Management Lecture 3: Technology in Services

Announcements  Homework 1 due today  Homework 2 due next week 1/30  Project 1 given today, due 2/13

Today’s Lecture  Review of Strategic Advantage (Porter Model)  Role of Technology in Services  Alan Karp, HP Labs

Understanding the Competitive Environment of a Company Companies do not exist in a vacuum: It is necessary to understand the competitive environment to assess the current competitive position of a company. It has become increasingly necessary to posture a company for challenges in its future.

Porter Competitive Model Intra-Industry Rivalry Strategic Business Unit Bargaining Power of Buyers Bargaining Power of Suppliers Substitute Products and Services Potential New Entrants

Competitive Model Focus What is driving competition in the current or future industry? What are current or future competitors likely to do and how can a company respond? How can a company best posture itself to achieve and sustain a competitive advantage?

Competitive Model Forces Intra-industry Rivals: Strategic Business Unit (SBU) and major rivals. Buyers: Categories of major customers. Suppliers: Categories of major suppliers that play a significant role in enabling the SBU to conduct its business. New Entrants: Companies that are new as competitors in a geographic market or existing companies that through a major shift in business strategy will now directly compete with the SBU. Substitutes: An alternative to doing business with the SBU.

Intra-Industry Rivalry SBU: UCSC Rivals: UC campuses, CSU, Private universities, Community Colleges Bargaining Power of Buyers Bargaining Power of Suppliers Substitute Products and Services Potential New Entrants Faculty Staff Equipment and Service Suppliers Alumni Foundations Governments IT Vendors Internet Distance Learning Books and Videotapes Computer-Based Training Company Education Programs Students Parents Businesses Employers Legislators Foreign Universities Shift in Strategy by Universities or Companies Porter Competitive Model Education Industry – Universities U.S. Market

Role of Technology through Porter perspective: Can we… 1. Build barriers to prevent a company from entering an industry? 2. Build in costs that would make it difficult for a customer to switch to another supplier? 3. Change the basis for competition within the industry? 4. Change the balance of power in the relationship that a company has with customers or suppliers? 5. Provide the basis for new products and services, new markets or other new business opportunities

Porter Competitive Strategies Differentiation Strategies Innovation Strategies Growth Strategies Alliance Strategies Cost Leadership Strategies Primary Strategies Supporting Strategies

Porter Primary Strategies Differentiation—customer values the differences that you provide in products, services or capabilities. Cost—is least cost. If this is the primary strategy, over time there will only one ultimate winner.

Porter Supporting Strategies Innovation—either with business strategies or use of information systems or both. Growth—deals with growth in revenue and other business volumes. Can be a key factor in establishing a market position. Can also be a major requirement to offset high fixed operating costs. Alliances—importance of establishing a strong relationship with suppliers and other business partners often on a contractual basis.

Dell, Inc. Strategies Primary Strategy: Differentiation Least Cost Supporting Strategies: Innovation Growth Alliances

IT Significance Information Technology can change the way that an organization (business or public sector) competes. As the foundation for organizational renewal. As a necessary investment that should help achieve and sustain strategic objectives. As an increasingly important communication network among employees and with customers, suppliers, business partners and even competitors.

Strategic Roles of Information Systems Specific Examples:  Lower Costs  Differentiate  Innovate  Promote Growth  Develop Alliances  Improve Quality and Efficiency  Build an IT Platform  Support (enable) other Strategies

New Service Development

Learning Objectives  Discuss the new service development process.  Prepare a blueprint for a service operation.  Describe a service process using the dimensions of divergence and complexity.  Use the taxonomy of service processes to classify a service operation.  Compare and contrast the generic approaches to service system design.

Levels of Service Innovation Radical Innovations  Major Innovation: new service driven by information and computer based technology  Start-up Business: new service for existing 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 features of currently offered service  Style Changes: modest visible changes in appearances

Technology Driven Service Innovation  Power/energy - International flights with jet aircraft  Physical design - Enclosed sports stadiums  Materials - Astroturf  Methods - JIT and TQM  Information - E-commerce using the Internet

Service Design Elements  Structural - Delivery system - Facility design - Location - Capacity planning  Managerial - Service encounter - Quality - Managing capacity and demand - Information

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

Service Blueprint of Luxury Hotel

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.

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 PREPARE ORDERS Salad (4 choices) Entree (15 choices) Dessert (6 choices) Beverage (6 choices) SERVE ORDERS COLLECT PAYMENT Specific Table Selection Recite Menu: Describe Entrees & Specials Assortment of Hot Breads and Hors D’oeuvres At table. Taken Personally by Maltre d’ Individually Prepared at table Expand to 20 Choices: Add Flaming Dishes; Bone Fish at Table; Prepare Sauces at Table Expand to 12 Choices Add Exotic Coffees; Sherbet between Courses; Hand Grind Pepper Choice of Payment. Including House Accounts: Serve Mints LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE

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

Generic Approaches to Service Design  Production-line Limit Discretion of Personnel Limit Discretion of Personnel Division of Labor Division of Labor Substitute Technology for People Substitute Technology for People Standardize the Service Standardize the Service  Customer as Coproducer Self Service Smoothing Service Demand  Customer Contact Degree of Customer Contact Separation of High and Low Contact Operations  Information Empowerment Employee Customer Customer

Customer Value Equation

Project 1

Technology in Service

Learning Objectives  Discuss the of technology in the service encounter.  Describe the emergence of self-service.  Place an example of service automation in its proper category.  Describe different Internet business models.  Understand the importance of scalability to e- commerce success.  Discuss the managerial issues associated with the adoption of new technology.

Role of Technology in the Service Encounter Technology Customer Server Server Server Customer D. Technology-Mediated Service Encounter E. Technology-Generated Service Encounter A. Technology-Free Service Encounter B. Technology-Assisted Service Encounter C. Technology-Facilitated Service Encounter

Evolution of Self-service Service IndustryHuman ContactMachine Assisted ServiceElectronic Service BankingTellerATMOnline banking GroceryCheckout clerkSelf-checkout stationOnline order/ pickup AirlinesTicket agentCheck-in kioskPrint boarding pass RestaurantsWait personVending machineOnline order/ delivery Movie theaterTicket saleKiosk ticketingPay-for-view Book storeInformation clerkStock-availability terminalOnline shopping EducationTeacherComputer tutorialDistance learning GamblingPoker dealerComputer pokerOnline poker

Self-service Technologies (SST)  Does customer adoption of self-service follow a predictable pattern?  How do we measure self-service quality (e.g., ease of use, enjoyment, and/or control)?  What is the optimal mix of SST and personal service for a service delivery system?  How do we achieve continuous improvement when using SST?  What are the limits of self-service given the loss of human interaction?

Classification of Service Automation  Fixed-sequence (F) - parking lot gate  Variable-sequence (V) - ATM  Playback (P) - answering machine  Numerical controlled (N) - animation  Intelligent (I) - autopilot  Expert system (E) - medical diagnosis  Totally automated system (T) - EFT

Purpose of Web-site  A retail channel (Amazon.com)  Supplemental channel (Barnes & Nobel)  Technical support (Dell Computer)  Embellish existing service (HBS Press)  Order processing (Delta Airline)  Convey information (Kelly Blue Book)  Organization membership (POMS.org)  Games (Treeloot.com)

Technology Convergence Enabling E-Business  Internet  Global telephone system  Communications standard TCP/IP (Transfer Control Protocol/Internet Protocol)  Addressing system of URLs  Personal computers and cable TV  Customer databases  Sound and graphics  User-friendly free browser

E-Business Models ( Weill & Vitale, Place to Space, HBS Press, 2001)  Content Provider: Reuters  Direct to Customer: Dell  Full-Service Provider: GE Supply Co.  Intermediary: eBay  Shared Infrastructure: SABRE  Value Net Integrator: 7-Eleven Japan  Virtual Community: Monster.com  Whole-of-Enterprise: Government

Economics of E-Business  Sources of Revenue: - Transaction fees - Information and advice - Fees for services and commissions - Advertising and listing fees  Ownership - Customer relationship - Customer data - Customer transaction

Electronic and Traditional Services

Grocery Shopping Comparison

Economics of Scalability Dimensions High Scalability Low E-commerce continuum Selling information (E-service) Selling value- added service Selling services with goods Selling goods (E-commerce) Information vs. Goods Content Information dominates Information with some service Goods with support services Goods dominate Degree of Customer Content Self-serviceCall center backupCall center supportCall center order processing Standardization vs. Customization Mass distributionSome personalization Limited customization Fill individual orders Shipping and Handling Costs Digital assetMailingShippingShipping, order fulfillment, and warehousing After-sales serviceNoneAnswer questionsRemote maintenanceReturns possible Example ServiceUsed car pricesOnline travel agentComputer supportOnline retailer Example FirmKbb.comBiztravel.comEverdream.comAmazon.com

Adoption of New Technology in Services  Challenges of Adopting New Technology The Process is the Product Back Office vs Front Office Changes Need for Standardization  Managing the New Technology Adoption Process Ten step process with concern for employees and customers

Discussion Name an Internet site you believe will be successful in the long run - explain why.

E-Business Supply Chain (Network) Elements  Major entities including firm of interest and its customers, suppliers, and allies  Major flows of product, information, and money  Revenues and other benefits each participant receives  Critical aspects: participants, relationships, and flows Example: 7-Eleven Japan

Evolution of B2C E-Commerce in Japan 1. What features of the 7-Eleven Japan distribution system illustrate the “Value Net Integrator” e-business model? 2. Does the 7-Eleven Japan distribution system exhibit scalability economics? 3. How does the 7-Eleven example of B2C e- commerce in Japan illustrate the impact of culture on service system design? 4. Will the 7-Eleven “Konbini and Mobile” system be adopted in the United States?

Alan Karp  Head of Virus Safe Computing Initiative, HP Labs  Ph.D. Astronomy, University of Maryland  15 years at IBM, 15 years at HP Labs  Expert in large scale scientific computing, distributed service development