1 Ch. 4 New Service Development

2 Learning Objectives 1. Innovation in services 2. New service development process 3. Service Design Elements 4. Strategic positioning 5. Service blueprinting 6. Generic approaches to service system design design

3 1. 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. R&D!

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

5 2. 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

6 2. Levels of Service Innovation (1) Radical Innovations Major Innovation Start-up Business New Services for the Market Presently served (2) Incremental Innovations Service Line Extensions Service Improvements Style Changes e.g. FedEx

7 2. 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 e.g. Amazon.com

8 3. Service Design Elements (1) Structural: Delivery system Facility design Location Capacity planning (number of ) (1) Structural: Delivery system (front & back office) Facility design (aesthetics, layout) Location (competition, site characteristics) Capacity planning (number of servers) (2) Managerial Service encounter Quality Managing capacity and demand Information (2) Managerial Service encounter (culture, empowerment) Quality (measurement, guarantee) Managing capacity and demand (queues) Information (data collection, resource) e.g. Shouldice Hospital

9 3. Customer Value Equation V = (R + PQ) / (P + C) R: Results PQ: Process Quality P: Price C: Costs

10 4. Strategic Positioning Through Process Structure Degree of Complexity: Measured by the number of steps in the service blueprint. e.g. clinic VS general hospital. Degree of Divergence: Amount of discretion permitted the server to customize the service. Degree of Divergence: Amount of discretion permitted the server to customize the service. e.g. attorney VS paralegal. e.g. attorney VS paralegal.

11 4. Lower/Higher Complexity/Divergence No Reservations Self-seating. Menu on Blackboard Customer Fills Out Form Pre-prepared: No Choice Limit to Four Choices Sundae Bar: Self-service Coffee, Tea, Milk only Serve Together Cash only TAKE RESERVATION SEAT GUESTS, GIVE MENUS SERVE WATER AND BREAD TAKE ORDERS Salad (4 choices) Entree (15 choices) Dessert (6 choices) Beverage (6 choices) SERVE ORDERS COLLECT PAYMENT Specific Table Selection Recite Menu: Describe Assortment of Hot Breads and Hors D’oeuvres At table. Taken Personally by Maltre d’ Individually Prepared at table Expand to 20 Choices: Expand to 12 Choices Add Exotic Coffees Separate-Courses Choice of Payment LOWER CURRENT PROCESS HIGHER

12 5. Service Blueprint of Luxury Hotel

13 6. Generic Approaches to Service Design Production-line Limit Discretion of Personnel Limit Discretion of Personnel Standardize the Service Standardize the Service Customer as Coproducer Substitution of Customer Labor for Provider Smoothing Service Demand Customer Contact Degree of Customer Contact Separation of High and Low Contact Operations Information Empowerment

14 Discussion Questions What ethical issues are raised in the promotion of sales during a service transaction? What are some drawbacks of customer participation in the service delivery process? Give an example of a service in which isolation of the technical core would be inappropriate.

15 INTERACTIVE CLASS EXERCISE The class breaks into small groups and prepares a service blueprint for bus carrier, courier service et al. The class breaks into small groups and prepares a service blueprint for bus carrier, courier service et al. 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?